SPX Credit Spread Trader

Cody,

Great point about the hedge (the purchase part) of a 25-point spread not being super effective. I wonder if that can be fixed by purchasing some slightly OTM calls/puts or a fly as additional hedges.

Also, I know coach does not really like to do this but when the short strike is in danger you can roll out a month or two (in addition of course to rolling away from the market). Now when you roll out a month or two, the strikes are usually 25 points apart... unless you call CBOE and ask them to add more strikes.


Quote from codyhopkins:

Hey Andy,

I usually do much larger spreads than Coach. The good is that you can go further away from the index (SPX) and still get a decent premium. the Delta is usually much smaller, therefore a much larger move must take place before you ahve to adjust. The Bad, obviously the margin is larger, but when the index does move against you (like Oct.) the adjustments seem to be more difficult because the purchase half of the spread does not provide nearly the hedge that the close spreads get out of it.

Cody
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Coach,

Think we'll be seeing the completion of a Double Top in the next day or so ? Would you use the trough of the double top (around 1250) as a trigger to sell your JAN PUT spread ?
 
Looking at the SPX I see the following observations:

1. We have a pausing top right now and yesterdays action was quite bearish further confirmed by today's nice drop. I see two OTM levels of support:

a. Based on fib retracements off of OCT lows and DEC highs we have a 33% retrace suport level at 1239/1240

b. Remember that flag pattern I identified at the mid point of the run up from the OCT lows projected the price action to 1260. Well the top of that flag is about 1225 which is another support level.

So as long as these two levels are not broken I am still bullish and therefore focused only on put spreads. I am trying to grab them today if I can in pieces and have an order for 120 of the 1170/1180 JAN puts at $0.55. I pushed the bid/ask spread a bit but since I am not in a rush I might as well see if it gets filled or not. I would like to time the trough but I probably would not get it right and I am only going in partially with my positions for JAN. One to add mroe later if the market drops, two I still got DEC margin tied up for one more week.

Quote from Synaptic:

Coach,

Think we'll be seeing the completion of a Double Top in the next day or so ? Would you use the trough of the double top (around 1250) as a trigger to sell your JAN PUT spread ?
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Coach,

Why do you use the 33% retracement intead of 38.2%. I go with 38.2% and 61.8% for retracement. So I am at 1236(38.2%) and 1225 (50%).

Quote from optioncoach:

Looking at the SPX I see the following observations:

1. We have a pausing top right now and yesterdays action was quite bearish further confirmed by today's nice drop. I see two OTM levels of support:

a. Based on fib retracements off of OCT lows and DEC highs we have a 33% retrace suport level at 1239/1240

b. Remember that flag pattern I identified at the mid point of the run up from the OCT lows projected the price action to 1260. Well the top of that flag is about 1225 which is another support level.

So as long as these two levels are not broken I am still bullish and therefore focused only on put spreads. I am trying to grab them today if I can in pieces and have an order for 120 of the 1170/1180 JAN puts at $0.55. I pushed the bid/ask spread a bit but since I am not in a rush I might as well see if it gets filled or not. I would like to time the trough but I probably would not get it right and I am only going in partially with my positions for JAN. One to add mroe later if the market drops, two I still got DEC margin tied up for one more week.
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JAN POSITION!

Took advantage of the dip to open a relatively safe Jan SPX Put Spread:

- 120 JAN SPX 1165/1175 Put Spreads @ $0.45

Credit = $5,400
Risk = $120,000 Margin/$114,600 Capital

Return = 4.5%/4.7%


I decided to list return this way since the true risk is the difference between the spreads minus the credit but some brokers may reflect buying power reduction as the difference between the spreads. So this will paint a clearer picture. But a fellow poster raised the subject some time ago and to be 100% correct, it is really $114,600 at RISK, although your $120,000 may be locked up by your broker. (i.e. OX appears to reflect difference between spreads while ToS reflects difference minus credit received- 1 point in ToS favor lol).

As for the position I will certainly be happy to let it ride to expiration earning 4.5%/4.7% for one month to start off the year. With a short strike at 1175 and the index at 1253.50, I feel that the 78 points or so is quite a nice cushion given later year/Jan rally potential and also even if we are down I have several levels of support. After DEC margin clears up I could always add some more if the credit is there. If not then will take an easy single for the first month....
 
I made my comments based on yesterday trading action. The big boys were bailing out in the last hour creating the big reversal and I knew the stock market couldn't sustain the pressure it was under last night.

1236 is the 38.2% fibonacci retracement.

It could pause for sure at the 1245 area (the breakout area).



Quote from riskarb:

1236 into XMAS? You're serious? Good luck with that one.
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Here is the performance of November, December and January for the last few years.
How many points went up or down from settlement value to settlement value.

Dec 98 = + 17.73
Dec 99 = +9.54
Dec 2000 = - 52.93
Dec 01 = +3.3
Dec 02 = - 5.21
Dec 03 = + 53.47
Dec 04 = + 6.04
Dec 05 = To be seen

11/98 = +101.36
11/99 = + 153.06
11/2000 = - 8.67
11/01 = + 77.84
11/02 = + 22.79
11/03 = - 13.10
11/04 = + 78.28
11/05 = + 71.06

1/99 = +249.45
1/2000 = +30.69
1/01 = +33.82
1/02 = - 19.77
1/03 = + 17.22
1/04 = + 45.91
1/05 = - 13.68

Labib Imtanes
 
I wanted to clarify that 1245 number. I have said that before but I was mistaken. The breakout I am working off of is the 1225 range where I saw the consolidation rectangle. The 1245 was the previous resistance from the summer highs which might now still be good support. The FIB retracement puts us in between that 1245 support and 1225 breakout area support. Therefore these 3 levels are significant for me in the short-term as to the strength of this rally off the OCT lows.


Quote from piccon:


It could pause for sure at the 1245 area (the breakout area).
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I have read through your trades and find that it is very similiar to a strategy I have been planning to perform with NDX options. I am not sure if this issue has been risen yet since I was unable to read through over 400 pages of posts, so sorry if I am covering old territory.

I attempted to sell 60 OTM puts on the NDX at .50 which would net me $3,000 and hedge OTM calls. I was unable to execute the trade due to the fact that I would need $1.2 million in my account. How is it that you are able to write so many options? What is your margin requirment at the brokers you use. Is my broker, Charles Schwab's margin requirments incorrect?
Basically, is there a way I can execute that type of trade without the massive amount of capital requirment. Thank you
 
Well I would love to answer by saying I have millions and can satisfy the margin requirements but it ain't true. You are doing naked options, I am using credit spreads. The credit spreads have way smaller margin requirements because I am not in naked positions (well at least not without Jessica Alba...)


Quote from HFOA:

I have read through your trades and find that it is very similiar to a strategy I have been planning to perform with NDX options. I am not sure if this issue has been risen yet since I was unable to read through over 400 pages of posts, so sorry if I am covering old territory.

I attempted to sell 60 OTM puts on the NDX at .50 which would net me $3,000 and hedge OTM calls. I was unable to execute the trade due to the fact that I would need $1.2 million in my account. How is it that you are able to write so many options? What is your margin requirment at the brokers you use. Is my broker, Charles Schwab's margin requirments incorrect?
Basically, is there a way I can execute that type of trade without the massive amount of capital requirment. Thank you
More...
 
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