SPX Credit Spread Trader

As long as you have an approach to close out or partially hedge the positions when it makes a larger than normal move, you can manage this strategy for consistent profits. As usual it comes down to risk management.

Quote from Synaptic:

labib52,

Interesting .... I did a similar type of theoretical analysis a few months back on the OEX and found that opening spreads at least 30 points away from the money on day one of the option cycle provided a very good success ratio. Granted, you aren't typically opening spreads on Day One of each cycle and you're looking at very small premiums, but it provided another small piece of info to stash away in my "Trading Black Book". Slow and steady CAN win the race I suppose. :)
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You are right, the lure of additional premium without any additional margin is often too tempting. But you have added the risk that now you lose on a move higher whereas with the put spread alone you did not so the probabilities of profit have been decreased, so to speak. Put spreads are always a good first choice because the skew allows you to go further OTM than you might be able to on the call side. I know markets often crash harder than they explode higher, thus the skew, but it is part of the risk profile when selecting strikes.

But there are certain times when you may take a directional bias and choosing spreads on the other side of that bias does give you a great trade. Adding the other spread for an IC should be done with careful consdieration to all the TA tools we discuss here to determine how far out you should go to at least give you the best chance of having both sides expire worthless or be closed for a profit.

For JAN I am only looking at puts really-not today of course with the surge in the SPX but if we were done again today I might have looked more intently- and would only add calls if I could go deeper than what I am seeing now on the strikes. Of course there is hardly any premium there anyway.


Quote from ryank:

Sometimes I find that I look too hard to complete an IC after I put on one credit spread. The tempting part about the IC is that once you put on your initial position, you can put on the other side for "free" (i.e. no additional margin but you get a credit). The thing to keep in mind is that you are adding RISK to go along with the "free" margin you are using, so things aren't so "free" in reality. Right now the market has a definate bias to the upside so it may be a better play to chase the market upwards by using bull put spreads and not do any call spreads.

ryan
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Coach,
With the bid of 50 cents on the JAN 1325/1335, I suppose it would be worth seeing the next set of higher strikes.

Quote from optioncoach:

For JAN I am only looking at puts really-not today of course with the surge in the SPX but if we were done again today I might have looked more intently- and would only add calls if I could go deeper than what I am seeing now on the strikes. Of course there is hardly any premium there anyway.
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That is not a bad price at 60 points OTM but still fear the upward burst. I bet in hindsight those strikes will look safe but I agree that a few strikes higher would be more of a comfort level if I chose to do calls. Also that is the mid-point or so, so the actual fill might be less than $0.50. Then again the market just coughed up a 10 point gain down to just 4 points so strength is waning...


Quote from Synaptic:

Coach,
With the bid of 50 cents on the JAN 1325/1335, I suppose it would be worth seeing the next set of higher strikes.
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I am looking but since we are still positive for the day I am hesitant to touch anything. If we could bleed to 1260 this week I might bite on the 1170/1180 put spread but looking for at least $0.40 to consider it. With my luck I will never get it lol.

Quote from Synaptic:

Anyone selling PUTS on this 3:00pm freefall ?:confused:
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You just might get your wish .....1263 ?

Quote from optioncoach:

I am looking but since we are still positive for the day I am hesitant to touch anything. If we could bleed to 1160 this week I might bite on the 1170/1180 put spread but looking for at least $0.40 to consider it. With my luck I will never get it lol.
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