SPX Credit Spread Trader

Here is my PHIL-osophy for JAN. I usually like to start the year with more conservative lower risk spreads the first month or two to get some wins under my belt and some cash early and get mentally fit for the new year. Sounds silly but I wipe the slate clean when DEC ends so Jan is a good time to reflect on past mistakes and things done right but also to look ahead for the coming year. Grabbing a few easier (nothing is truly easy) spreads, even sacrificing bigger returns, will allow you to avoid the euphoria mistakes that come if you had a great 2005. You will tend to dive into JAN and ratchet up the risk too much and perhaps kill yourself for months making back silly losses.

So I like to stap back and take some softballs in Jan and Feb as best I can and get the good feelings going in the beginning of the year.

SO for JAN, I would probably look at the 1325/1335 Calls to start and on the put side look at the 1175 or 1165 strikes. For example you might be able to sell the 1120/1125 put spread for $0.30 on a down day. Sell a bunch of those and just sit back and enjoy the 135 point cushion and take a position with high high high probability of success. I am eyeing that one myself and next week if we get some dow moves to 1250 I may snatch it.

Of course this could change over the next week or so depending on market swings and as more strikes are added and as I delve deeper into possible resistance/support points.

My advice is that when DEC comes to an end we have a lessons learned discussion/postings and air out all the good and the bad and I advise many of you to start slow in JAN and FEB and get some easier hits to get your mental state ready for the battle ahead. Of course anything can happen in JAN and FEB but try to go out as far OTM as possible and let your stress levels come down after the end of 2005. I guarantee you will thank me after a calm 2 months (i.e., not chasing high premiums and getting whipsawed into adjustments). So start off with less than the full amount of margin you were going to obligate and build slowly. This way, by the time the summer hits you will be humming along, in the zone and have a nice set of profits (hopefully ;)) banked to guide you the rest of the year.




Quote from chrdso:

Thinking about the SPX 1290/1300 or 1300/1310 Jan. bear call.

Probably a downtrend in the next few days.

Plan on closing this spread at 50% profit.


Coach, 1290/1300 or 1300/1310 Jan SPX, what do you think?
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Hey Coach,

Question for ya... Say the market did rally suddenly and you had to roll out your 1285 strike (or close the spread). Would you consider rolling to say the FEB 1325/1350 for a lot more credit ($2.80). The premise would be that in the next 30 days the market would end it's year end rally and correct downwards, say to 1200. If that happened the 1325/1350 spread would go from 2.80 to under a buck, at which time you could close it out. So the trade would take advantage of a directional move rather than theta decay.

So, what I'm trying to say is that rolling further OTM and out a couple of months seems like a good save. Caveat is that you are relying on a directional move rather than theta decay (and the former is more potent than the latter) for your profits.
 
Too many what ifs to roll out to FEB and only to 1325. Too risky to wait it out. I cannot say that we will get back to 1200 and 2 months is a long way to forecast for the SPX. In some circumstances I could see rolling out 1 more month to salvage a losing position or greatly reduce a loss but 2 months is too much. I would rather take the hit now and move on to the next month.

Quote from andysmith:

Hey Coach,

Question for ya... Say the market did rally suddenly and you had to roll out your 1285 strike (or close the spread). Would you consider rolling to say the FEB 1325/1350 for a lot more credit ($2.80). The premise would be that in the next 30 days the market would end it's year end rally and correct downwards, say to 1200. If that happened the 1325/1350 spread would go from 2.80 to under a buck, at which time you could close it out. So the trade would take advantage of a directional move rather than theta decay.

So, what I'm trying to say is that rolling further OTM and out a couple of months seems like a good save. Caveat is that you are relying on a directional move rather than theta decay (and the former is more potent than the latter) for your profits.
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Coach:

SPX is approaching 1250. Are you considering closing out your 1285 bear call. Currently I would only have to pay a bit more than I received, so I'm thinking about it.

What's your take?
 
I have been watching the 1285 call spread to close out but still feeling like we got some downside/sideways movement coming so may want to wait until next week. But if I could buy back for $0.50 (sold for $0.70) I would take it but the b/a spread does not make $0.50 a likely possibility.

I see support today around 1251 and I doubt we will hit that since the market has already pulled back to 1255. Fib retracement off the OCT low to recent high is 33% retrace at 1236 or so and 50% retrace at 1220. These retracements are likely if the 1271 high stays as the high but I doubt it will retrace in 2 weeks time.

Willing to let time decay work a little but certainly will get out if I can even for a hair profit.


Quote from rdemyan:

Coach:

SPX is approaching 1250. Are you considering closing out your 1285 bear call. Currently I would only have to pay a bit more than I received, so I'm thinking about it.

What's your take?
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Well for shits and giggles I decided to put a BTC order on my 1285/1290 call spread at $0.50. Sure enough I got plenty of shits and giggles as it filled LOL. So with that $8,000 profit banked, here is the revised tally:

Roll Loss: ($33,000)
New Puts at 1220 $12,000
1285/1290 Call Spread profits: $8,000
Banked Profits (1140 puts) $ 6,000
SPX Partial hedge profits: $2,450
SPY Partial hedge profits: $9,000


Net Credit Should All Remain the Same: $4,450.

So if puts expire worthless I make $4,450 or if I buy them back at a profit I make less or a limited loss. Not bad for a position that got pretty hairy ;). As I said, when the market surged I went into prevent mode and wanted to preserve my capital. I will probably just sit on the puts. If I am feeling frisky I may sell another 100 to use my max margin I allow myself. That could bring in more credit as the market dips and help my profits.

I still see 1245-ish support from previous breakout and 1235-ish as a far off support point and 1220 as well based on FIB retracements.

Isn't this fun...... (bet you thought I was gonna get blown up huh.. still could LOL).
 
I sold the 1300/1310 Dec call spread yesterday. I like the flat action of the last 2 days but still a lot of time to expiration. I was hoping for a little market optimism on Monday to take a good profit on my 1195/1205 put spread but I am holding onto that one for now and letting time decay work. The market isn't reacting much to the fairly good news we've had this week, probably just taking a breather from the weeks leading up to this one. Lots of talking heads talking about the bulls running in December. I'm not sure how to read that as the talking heads can change their minds with the blowing of the wind. It is interesting that many of them are pointed in the same direction (up) right now though.

ryan

Quote from Synaptic:

Anyone taking a position today ? Just curious ...:confused:
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Coach,

I'm curious, why don't you just sell naked options? You'd be able to go MUCH further OTM. I know, I know, "unlimited risk"... but right now, you stand to lose $10 to make only $0.50. I can't imagine naked options would be any worse than 20:1? You'd cut your losses way before you got into any of that type of trouble.... so why not do it?
 
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