Spoke to my guy at TOS who handles Dr. Epps autotrade accounts for them, and he said that in Nov. Epps rolled and then cut his losses by closing out. In so doing he took about 5% losses across the board in SPX, and XEO. However for the aprox 3 years he has posted trades, he is up over 200%. My take is that he doesnt roll forward like Phil does , instead puts on his trade right after expiration and works on this trade until the following expiration. He picks strikes 100 pts apart on SPX to sell , and 50 pts apart on XEO. He got absolutely creamed trying to do NDX, so no longer offered. I really dont think he handles the strategy as well as Phil does, but has some nice booked profits over a 3 year period, so there is hope , even sticking with iron condors the entire time.
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Please give an example of your commonality.
Gatorplease,
I really need some help when it comes to making adjustments on my credit spreads when they are about to get into trouble and I was wondering if Phil gets into all the different ways to make these adjustments with his book. Are there any other good books that you would recommend for helping me with credit spread trading? I appreciate any help you could give me.
DAVE
I really need some help when it comes to making adjustments on my credit spreads when they are about to get into trouble and I was wondering if Phil gets into all the different ways to make these adjustments with his book. Are there any other good books that you would recommend for helping me with credit spread trading? I appreciate any help you could give me.
DAVE
No, Phil's book does not go into adjusting credit spreads. I personally have not read a book which adequately discusses adjusting credit spreads. But I am not an expert.
I would suggest you read through this spread. While extensive, there is a lot of good information here.
Also, consider www.optioninvestor.com. The couch potato trader. Mike Parnos has a pay to use service which trades iron condors. He has an incredible track record.
I'd like to hear thoughts on covering the 1285/1300Call spread by BUYING the January spread.1285/1300.
Your question is a good one. Since the OTM credit and ITM debit at the same strikes are synthetically equal they have the same risk reward profile. I have to take your quote with a grain of salt because splitting the b/a right down the middle is quite difficult so it is hard to say you will really get the fills you are estimating. On top of that the credit and debit spread have a unique difference that is important to me.
The debit spread requires a lock up of the debit for the duration of the spread. The credit spread allows me to put the margin in other securities and therefore the money is not locked up. So assuming your fills are correct, instead of locking up $9.50 in the debit spread, I can have $9.60 of the margin requirement on the credit spread invested in t-bills or closed-end funds earning interest. So I am putting my money to work twice for the same position. Now I am talking about on a portoflio basis where if I am using 25% of my portoflio for spreads, I do not need to have 25% of my portoflio locked up in the spreads as I would with debits. With credits, I can simply do the spreads against my portoflio of interest earning or dividend paying securities.
So even though they are synthetically equivalent, doing the credit spreads is better for me since it gives me more flexibiltiy in my portoflio. The synthetically equivalent-ness is only with respect to the risk/reward profile. However, how you use either in your portfolio can be quite different and is really a matter of personal choice. I prefer the credit spreads due to the fact I can back them up with investments in other securities as opposed to committing the whole risk amount as I would have to in a debit spread. But again, it is a personal choice, one is not outright better, trade only what is better for you.
The debit spread requires a lock up of the debit for the duration of the spread. The credit spread allows me to put the margin in other securities and therefore the money is not locked up. So assuming your fills are correct, instead of locking up $9.50 in the debit spread, I can have $9.60 of the margin requirement on the credit spread invested in t-bills or closed-end funds earning interest. So I am putting my money to work twice for the same position. Now I am talking about on a portoflio basis where if I am using 25% of my portoflio for spreads, I do not need to have 25% of my portoflio locked up in the spreads as I would with debits. With credits, I can simply do the spreads against my portoflio of interest earning or dividend paying securities.
So even though they are synthetically equivalent, doing the credit spreads is better for me since it gives me more flexibiltiy in my portoflio. The synthetically equivalent-ness is only with respect to the risk/reward profile. However, how you use either in your portfolio can be quite different and is really a matter of personal choice. I prefer the credit spreads due to the fact I can back them up with investments in other securities as opposed to committing the whole risk amount as I would have to in a debit spread. But again, it is a personal choice, one is not outright better, trade only what is better for you.
I would agree that if you are a highly versed trader with great understanding of adjustments then the book might be too simplistic. As for buying it used, I would not expect any good trader here to pay the full retail price (i.e. simply pay the ask...lol).
Quote from gatorplease:
I've read the book, but am not a highly qualified trader. I learned alot from the book. The other book I read was McMillans. Phil does a nice job of explaining some of the complexities in "plainer English" so that I was better able to understand some of the trades. Phil's book filled in a number of "holes" I did not understand from McMillan.
If you are a highly versed investor, the book may be simplistic for you.
I'm a dentist by trade. Take Hundreds of hours of continuing ed. If I go to a course, and walk away with just 1 or 2 "pearls", it was a good course. For the few dollars Phil's book costs on Ebay (I bought mine used-sorry Phil) you can skim over the parts of interest to you.
That's as unbiased, though maybe as uneducated, as you can get!
Have a great day.
Labib,
I'm sure coach will give you his opinion in due course. In the mean time, here is my take on the situation:
Looking at the synthetic debit equivalent is always a good idea as a matter of habit. As I'm sure you know the credit spread and the synthetic equivalent maintain a pretty constant relationship known as the box.
One is not neccessarily better than the other. They have the same risk profile and should have the same net result. However, when deciding which one to use here are some considerations you might like to take into consideration:
1) Liquidity of the relevant option series. You may want to opt for the one with the most liquidity.
2) B/A Spread. OTM B/A spreads can be narrower than their ITM counterparts though it depends on how far OTM you are and also the instrument.
3) Price. Obviously you want to go for the cheaper. If there is significant difference between the two then there is an arbitrage opportunity which is normally impossible for retail traders to take advantage of and is going to be short lived.
4) Margin considerations. With a credit spread, you can gain interest on the collateral/margin set aside for the spread.
5) Exercise fees. If you hold to expiration the ITM debit spread will incur exercise fees.
Momoney.
I'm sure coach will give you his opinion in due course. In the mean time, here is my take on the situation:
Looking at the synthetic debit equivalent is always a good idea as a matter of habit. As I'm sure you know the credit spread and the synthetic equivalent maintain a pretty constant relationship known as the box.
One is not neccessarily better than the other. They have the same risk profile and should have the same net result. However, when deciding which one to use here are some considerations you might like to take into consideration:
1) Liquidity of the relevant option series. You may want to opt for the one with the most liquidity.
2) B/A Spread. OTM B/A spreads can be narrower than their ITM counterparts though it depends on how far OTM you are and also the instrument.
3) Price. Obviously you want to go for the cheaper. If there is significant difference between the two then there is an arbitrage opportunity which is normally impossible for retail traders to take advantage of and is going to be short lived.
4) Margin considerations. With a credit spread, you can gain interest on the collateral/margin set aside for the spread.
5) Exercise fees. If you hold to expiration the ITM debit spread will incur exercise fees.
Momoney.
Took some profits on one of my partial hedges to bank some money for a potential roll on my 1285 Calls although today's downdraft has provided a little more cushion.
SO here are the revised numbers boiled down (not orthodox way to present but want everyone to follow along easily:
Roll Loss: ($33,000)
New Calls at 1285 $24,000
New Puts at 1220 $12,000
Banked Profits $ 6,000
SPX Partial hedge profits: $2,450
Net Credit Should All Remain the Same: $11,450.
Would like to roll the 1285 Calls to 1305 and am looking into it for more cushion with 3 weeks to expiration.
Phil
SO here are the revised numbers boiled down (not orthodox way to present but want everyone to follow along easily:
Roll Loss: ($33,000)
New Calls at 1285 $24,000
New Puts at 1220 $12,000
Banked Profits $ 6,000
SPX Partial hedge profits: $2,450
Net Credit Should All Remain the Same: $11,450.
Would like to roll the 1285 Calls to 1305 and am looking into it for more cushion with 3 weeks to expiration.
Phil
Forgot to add both partial hedge closings to the totals so here is the revised post:
Took some profits on one of my partial hedges to bank some money for a potential roll on my 1285 Calls although today's downdraft has provided a little more cushion.
SO here are the revised numbers boiled down (not orthodox way to present but want everyone to follow along easily:
Roll Loss: ($33,000)
New Calls at 1285 $24,000
New Puts at 1220 $12,000
Banked Profits $ 6,000
SPX Partial hedge profits: $2,450
SPY Partial hedge profits: $9,000
Net Credit Should All Remain the Same: $20,450.
Would like to roll the 1285 Calls to 1305 and am looking into it for more cushion with 3 weeks to expiration.
Took some profits on one of my partial hedges to bank some money for a potential roll on my 1285 Calls although today's downdraft has provided a little more cushion.
SO here are the revised numbers boiled down (not orthodox way to present but want everyone to follow along easily:
Roll Loss: ($33,000)
New Calls at 1285 $24,000
New Puts at 1220 $12,000
Banked Profits $ 6,000
SPX Partial hedge profits: $2,450
SPY Partial hedge profits: $9,000
Net Credit Should All Remain the Same: $20,450.
Would like to roll the 1285 Calls to 1305 and am looking into it for more cushion with 3 weeks to expiration.