SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Parisd,
I'm sorry, but I have to disagree with your assertion. SET risk has in fact been covered ad nauseum on this thread in the past.
I hope that you did not lose out.
Momoney.
I'm sorry, but I have to disagree with your assertion. SET risk has in fact been covered ad nauseum on this thread in the past.
I hope that you did not lose out.
Momoney.
LOL. I'm inclined to agree with your analogy but perhaps not in quite so strong terms.
It does perplex me a little when people seem to be unaware of some of the fundamental aspects of what they are trading, like whether it is European or American exercise, what time the products trade, what exchanges they are traded on and CRUCIALLY how the product is settled. Aren't these fundamental things to know?
No one is perfect, we all make mistakes and are all ignorant of some things, but there is very little reason for being unaware of the basics.
Please at least visit: www.cboe.com
At the risk of being extremely patronizing lol, the best skill you can hope to learn is to be able to research for yourself and develop your own ideas rather than just following like a sheep. If Phil were to get run over, what would you do without him banging on about risk management and closing out positions before expiration etc.?
More importantly, what would I do without his sure-fire contrarian indicators?
More than perplexing, it worries me, because I don't want people to lose their money and I tend to get more nervous about other people's positions than my own!
Although Donna made out like a bandit this month (congrats Donna!) I was extremely dubious when she first put on her IC. I realise she is testing out weekly plays specifically, so fair enough.
Similarly, I've read of other people putting on ICs or spreads close to expiration but also relatively close to ATM in the hopes of getting a quick buck but perhaps not realising the atrocious risk to reward and low probability nature of those trades.
I have alluded in the past on this thread to the suspicion that SET risk can inflate the premiums of OTM options, especially close to expiration, and thus to the untrained eye make it look like you are getting a bargain, or rather selling something cheap for more than its worth. The reality is that due to SET, options have a higher probability of being ITM than one might suspect and that can only be contributing factor to their price.
Lastly, I believe it is important not to throw the baby out with the bathwater or suffer from a knee-jerk reaction. Although, I myself do not trade the SPX, the SET risk is not a reason to abandon trading the SPX if you were happy trading it before.
I sensed a similar knee-jerk reaction to last months higher volatility action resulting in people abandoning put spreads in favor of call spreads (probably came out worse this month) or going further OTM (for even worse risk/reward IMHO) etc.
I do trade the XEO and as Phil has mentioned it has its own problems so know that before you jump ship. Do your research.
It's easy to snipe from the sidelines but I strongly urge people to become more self-reliant and get smarter. I'm genuinely horrified and sorry for people that lost money this month as there is no real reason for that to have happened when doing FOTM credit spreads except in extreme black swan scenarios.
Lecture over. Prosperous trading!
Momoney.
It does perplex me a little when people seem to be unaware of some of the fundamental aspects of what they are trading, like whether it is European or American exercise, what time the products trade, what exchanges they are traded on and CRUCIALLY how the product is settled. Aren't these fundamental things to know?
No one is perfect, we all make mistakes and are all ignorant of some things, but there is very little reason for being unaware of the basics.
Please at least visit: www.cboe.com
At the risk of being extremely patronizing lol, the best skill you can hope to learn is to be able to research for yourself and develop your own ideas rather than just following like a sheep. If Phil were to get run over, what would you do without him banging on about risk management and closing out positions before expiration etc.?
More importantly, what would I do without his sure-fire contrarian indicators?
More than perplexing, it worries me, because I don't want people to lose their money and I tend to get more nervous about other people's positions than my own!
Although Donna made out like a bandit this month (congrats Donna!) I was extremely dubious when she first put on her IC. I realise she is testing out weekly plays specifically, so fair enough.
Similarly, I've read of other people putting on ICs or spreads close to expiration but also relatively close to ATM in the hopes of getting a quick buck but perhaps not realising the atrocious risk to reward and low probability nature of those trades.
I have alluded in the past on this thread to the suspicion that SET risk can inflate the premiums of OTM options, especially close to expiration, and thus to the untrained eye make it look like you are getting a bargain, or rather selling something cheap for more than its worth. The reality is that due to SET, options have a higher probability of being ITM than one might suspect and that can only be contributing factor to their price.
Lastly, I believe it is important not to throw the baby out with the bathwater or suffer from a knee-jerk reaction. Although, I myself do not trade the SPX, the SET risk is not a reason to abandon trading the SPX if you were happy trading it before.
I sensed a similar knee-jerk reaction to last months higher volatility action resulting in people abandoning put spreads in favor of call spreads (probably came out worse this month) or going further OTM (for even worse risk/reward IMHO) etc.
I do trade the XEO and as Phil has mentioned it has its own problems so know that before you jump ship. Do your research.
It's easy to snipe from the sidelines but I strongly urge people to become more self-reliant and get smarter. I'm genuinely horrified and sorry for people that lost money this month as there is no real reason for that to have happened when doing FOTM credit spreads except in extreme black swan scenarios.
Lecture over. Prosperous trading!
Momoney.
Ryan,
A few basics to get you started:
Pros
- Electronically traded - including electronic cancels. SPX did not have this last time I checked.
- Fairly tight b/a (allegedly as tight as OEX but will not neccessarily show this on your screen). XEO has lower open interest than OEX but this doesn't seem to make any difference.
- P.M Settlement i.e. no SET fiasco - learn exactly what this means from www.cboe.com. This might not be considered strictly as a pro but rather as a difference.
- Personally get filled right at the mid quite frequently. Don't ask me how. Never happend on SPX for me.
- Have been filled at BETTER than the mid on occasion too (Don't tell anyone) Again, don't ask me how (momentary market fluctiation?) but there is nothing better than starting off with a paper profit and being able to close your position for a profit for 1 minutes work. Unfortunately, commisisons often make this just about unworthwhile.
Cons
- 5 point wide strikes. Remember, relative to index size, this is more equivalent to 10 point wide strikes on SPX for example. [EDIT] What this means is that you have less granularity for adjusting or choosing strikes than you do compared with SPX.
- Nowhere near as much premium FOTM compared to SPX. Indeed, I have yet to find a product that does.
- For FOTM credit spreads, forget getting into positions less than 33-35 days to expiration unless you are willing to accept worse risk/reward. The exception to this is when there is a volatility spike from a big move.
- FOTM bear call spreads can be difficult to make worthwhile.
- Again for FOTM credit spreads, nearing expiration, there are VERY LITTLE adjustment options that make financial sense (e.g. rolling out) compared with equivalent SPX positions. Worth digesting this point very carefully and the implications.
- For the same reasons as above, limited in options for rolling in opposite side for more credit or for building expectancy, when close to expiration.
Some of the above are highly subjective opinions so please bear that in mind.
Momoney.
A few basics to get you started:
Pros
- Electronically traded - including electronic cancels. SPX did not have this last time I checked.
- Fairly tight b/a (allegedly as tight as OEX but will not neccessarily show this on your screen). XEO has lower open interest than OEX but this doesn't seem to make any difference.
- P.M Settlement i.e. no SET fiasco - learn exactly what this means from www.cboe.com. This might not be considered strictly as a pro but rather as a difference.
- Personally get filled right at the mid quite frequently. Don't ask me how. Never happend on SPX for me.
- Have been filled at BETTER than the mid on occasion too (Don't tell anyone) Again, don't ask me how (momentary market fluctiation?) but there is nothing better than starting off with a paper profit and being able to close your position for a profit for 1 minutes work. Unfortunately, commisisons often make this just about unworthwhile.
Cons
- 5 point wide strikes. Remember, relative to index size, this is more equivalent to 10 point wide strikes on SPX for example. [EDIT] What this means is that you have less granularity for adjusting or choosing strikes than you do compared with SPX.
- Nowhere near as much premium FOTM compared to SPX. Indeed, I have yet to find a product that does.
- For FOTM credit spreads, forget getting into positions less than 33-35 days to expiration unless you are willing to accept worse risk/reward. The exception to this is when there is a volatility spike from a big move.
- FOTM bear call spreads can be difficult to make worthwhile.
- Again for FOTM credit spreads, nearing expiration, there are VERY LITTLE adjustment options that make financial sense (e.g. rolling out) compared with equivalent SPX positions. Worth digesting this point very carefully and the implications.
- For the same reasons as above, limited in options for rolling in opposite side for more credit or for building expectancy, when close to expiration.
Some of the above are highly subjective opinions so please bear that in mind.
Momoney.
LOL. Again, this is priced into the options accordingly.
Momoney.
Momoney.
Thanks for the excellent comments on run down on the XEO. I have traded the XEO here on this journal so I am not inclined against it, just hate that if I go 15 points OTM, the premium vanishes like a donut within reach of Homer Simpson.
Rdemyan,
Agree that a central location for positions etc. would be a good idea. Better still if they made these forums more specifically for trading journals. Do they allow sticky posts? Perhaps one post e.g. the very first one could be continually updated with the attachment of current positions etc.
As for a central file area for "Index characterstics" there is one already prepared here:
http://www.cboe.com
Now I'm the one sounding like a broken record.
Momoney.
Agree that a central location for positions etc. would be a good idea. Better still if they made these forums more specifically for trading journals. Do they allow sticky posts? Perhaps one post e.g. the very first one could be continually updated with the attachment of current positions etc.
As for a central file area for "Index characterstics" there is one already prepared here:
http://www.cboe.com
Now I'm the one sounding like a broken record.
Momoney.
Quote from rdemyan:
Coach:
Here's an example where it would be so helpful if we had a central place to store files. Instead of having to post or do research I could go to the central file area and look at the document titled "Index characteristics".
That way I could refresh my memory as to whether it's the OEX or XEO that is European style. Also refresh my memory about the differences between the XSP and the SPY.
Also, having your current positions and monthly spreadsheets of the results in the central file area would be very helpful
As someone posted earlier, this is a great and popular journal as evidenced by the number of pages. But that sheer number is making it very difficult to find information that I know we've discussed before.
So I thought I would mention it again. Thanks for listening to this broken record
What I think momoney means and what I meant is that the XEO premiums drop off sharply after 10 or 15 strikes away. Now using general analysis, the XEO moves about 1/2 as much as the SPX in most cases. So for me a 10/15 point move in the XEO would be the same as about a 20 - 30 point move in the SPX and I find that it is not enough cushion for the market moves over 45 days or less. Now the XEO and SPX do not move in a perfect 1:2 relationship but if you measure over the year it has a correlation or regression close to that. So for me I will look at XEO only when the deeper OTM strikes happen to have some premium. In general though, it might be tough to do the same month after month with little adjustments. Just my opinion though on XEO and how it moves in relation to SPX. Best way is to look at a chart and compare the two movements and look at the current strikes for DEC and what premium is available.
Phil
Phil