SPX Credit Spread Trader

Optionwriter,

Suggest you search the thread for multiple discussions on SET risk etc. I know it's a long thread but spending a weekend reading the ENTIRE thread is well worth it. More specifically, last comments by Phil on the matter here:

http://www.elitetrader.com/vb/showthread.php?s=&postid=903084&highlight=#post903084

Triple witching this exp so anything can happen lol. Will be an educational week even after FOMC :)

In general best not to hold till expiration unless a million miles away. Not worth it for the sake of saving some commissions. Timing when to roll or close can be a bit of an art.

Good luck.

Momoney.


Quote from optionwriter:

Coach - What criteria do you use whether to hold to settlement and let expire worthless or close position in last couple days?
I've taken a couple years off of credit spread trading and am easing back in.
I just reviewed the settlement procedures off the CBOE site, and was reminded settlement is based on opening price on Friday, not Thursday's close.
I'm currently holding 100 contracts on the Dec 1290/1305 call spread that I opened for a $.80 credit a few weeks ago.
I'm feeling pretty secure with this position, but say it gaps the next couple days and closes at 1285 on Thursday. Still 5 pts out of money, but risk of a > 5pt gap on Friday open would hurt.

Just curious as to you or others threshold for pain approaching expiration - thanks.
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If you are so scared for 1290/1305 what do you want me to do with 1280/1285?

I can't see SPX at 1280 by Thursday.
MHO

Quote from optionwriter:

Coach - What criteria do you use whether to hold to settlement and let expire worthless or close position in last couple days?
I've taken a couple years off of credit spread trading and am easing back in.
I just reviewed the settlement procedures off the CBOE site, and was reminded settlement is based on opening price on Friday, not Thursday's close.
I'm currently holding 100 contracts on the Dec 1290/1305 call spread that I opened for a $.80 credit a few weeks ago.
I'm feeling pretty secure with this position, but say it gaps the next couple days and closes at 1285 on Thursday. Still 5 pts out of money, but risk of a > 5pt gap on Friday open would hurt.

Just curious as to you or others threshold for pain approaching expiration - thanks.
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First let me say that I would do not prefer to hold through expiration but as is happening now in DEC it does happen.

If the options are deep OTM during expiration week and I want the margin freed up for an entry into the next month I try and close out for $0.05 or $0.10 at most if I can- will close it sooner if it hits those levels as well. If I am not in a rush for the next month then I will most likely let it expire worthless to get the max credit and save on commissions and being deep OTM I do not fear the SET. Like for DEC I already have some JAN positions so I have no problem just letting these go to expiration since they are so far OTM- at least 30 points or more.

If I feel that there is strong support or resistance before my strikes and there is no catalyst I foresee for increased movement I may be more inclined to hold the exta few days to expiration but this is rare. In JULY I believe I was at 1230 with the market at 1215/1220 on the last day and it was a flat market so I held to expiration and SET was only a few points higher (cannot really remember too well). But 5 points or less to the short strike is probably very risky since even a flat market can have a 5 handle set. I would probably get out with 5 points or less. 10 points or less it is still risky but I would judge it on the market and how choppy it has been and whether we are in a triple witching. NOV SET was quite volatile but so was the market leading up to it.


But overall my plan is to take profits and roll to the next month. If I make adjustments in a given month then I am more likely to hold to expiration since I need the full credits to still produce a profit or offset losses.

It is ad hoc for me so I do not have the best hard and fast rules to live by. For those who want more certainty, I tell them 10 points or less to short strike, get out on Thursday, 10 - 15 points it is a judgement call. Over 15 points, you are safe probably 99% of the time so you need to look at the market and make sure we are not in an extremely volatile environment with potential for large gap opening the next day (i.e. look for any company announcing earnings in post market on Thursday).

Hope this babbling helps lol...


Quote from optionwriter:

Coach - What criteria do you use whether to hold to settlement and let expire worthless or close position in last couple days?
I've taken a couple years off of credit spread trading and am easing back in.
I just reviewed the settlement procedures off the CBOE site, and was reminded settlement is based on opening price on Friday, not Thursday's close.
I'm currently holding 100 contracts on the Dec 1290/1305 call spread that I opened for a $.80 credit a few weeks ago.
I'm feeling pretty secure with this position, but say it gaps the next couple days and closes at 1285 on Thursday. Still 5 pts out of money, but risk of a > 5pt gap on Friday open would hurt.

Just curious as to you or others threshold for pain approaching expiration - thanks.
More...
 
To add to my above post, if I decided to hold a position to expiration below is a chart covering distances to short strike and whether I would hold through expiration.



> 20 Points Away I would allow to expire worthless

Between 15 and 20 Points Away - 99% of time would let expire worthless. Only reason I would most likely take off position is if late rallies push it less than 15 points and triple witching or potential for big gap is coming. With theta you should take the profit and move on.

Between 10 and 15 Points Away - Most cases would hold since 10+ SETS are still not the norm. Using TA and market news would decide if the chance is high for wide set (triple witching, etc..) which would make me get out.

Between 5 and 10 Points Away - Most cases would CLOSE position since even a small upside opening could put my short strike at risk. Maybe if I was 10 away at close would I consider holding for TA reasons or if market is relatively flat (JULY,JUNE).

< 5 Points Away - Never hold to expiration, close out on Thursday. Will lose more enough times to feel stupid for not getting out when you could at $0.05.
 
Good point. This was key last expiration. After the Thursday close, a big co. came out with some positive earnings (can't remember which) and the futures were looking bullish. So a positive SET the next day looked probable. Because options trade till 4.15 EST (bizarely, some people don't know that) then you still have a few minutes to take a decision on whether to get out or not.

I hope that people don't still get caught out again this month, and cry foul/conspiracy when the SET has a value that the SPX didn't trade at.

Thanks for bringing it up before expiration so that people who are following along will have a better chance of being aware this time.

Momoney.

Quote from optioncoach:

...so you need to look at the market and make sure we are not in an extremely volatile environment with potential for large gap opening the next day (i.e. look for any company announcing earnings in post market on Thursday).
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Phil,

Not to nitpick or anything. You make money, I make money, everybody is happy but......I have to question how you use TA to work out where SET is/could end up given the nature of how it is calculated. That is, unless you apply TA to all 500 stocks and look at best/worst case scenarios.

You know I'm not a fan of TA anyway so probably some whizbang TA technique with a funny acronymn/named after some muppet that I'm not aware of.

Momoney.

Quote from optioncoach:


...Using TA...
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It was GE and since it is such as big co and heavily weighted in spx I think that may have been a big reason...
Quote from momoneythansens:

Good point. This was key last expiration. After the Thursday close, a big co. came out with some positive earnings (can't remember which) and the futures were looking bullish. So a positive SET the next day looked probable. Because options trade till 4.15 EST (bizarely, some people don't know that) then you still have a few minutes to take a decision on whether to get out or not.

I hope that people don't still get caught out again this month, and cry foul/conspiracy when the SET has a value that the SPX didn't trade at.

Thanks for bringing it up before expiration so that people who are following along will have a better chance of being aware this time.

Momoney.
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Me thinks you right...and you made a nice bit of pocket money from that too.


Quote from DonnaV:

It was GE and since it is such as big co and heavily weighted in spx I think that may have been a big reason...
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Momoney:

I am not using TA to make SET determinations, more so to look for potential for market moves. If I am at 1230 and the market has strong resistance at 1220, then I am more likely than not to hold my positions to expiration if the index is at 1218 for example. So it is not to determine SET but to get a feeling on the market moves and determine whether in the 10 - 15 range if I want to hold or not. Triple witching trumps this of course and also my point on whether a major company is announcing earnings in the post Thu or pre-Friday market. Like in JULY I had a short strike 10 points outside of the resistance on a non triple witching day with the index about 15 points away and a calm market so I decided to hold and SET was about 8 points away I think.

As for TA, it is just a tool I use and I think most people expect it to tell you whether the stock is going to go up or down. Basically it is a means to analyze price action and make a decision of likely price action. I use it a lot to analyze and study the market and even to daytrade futures. It is a tool like any other and simply using it is not enough. A hammer and saw are great tools but simple picking them up will not mean you can build an amazing birdhouse. It is how the tools are used by the individual that matters the most. So TA provides guidance and analysis but I still have to make the final decision and if it helps me put the odds more in my favor when choosing direction or lack thereor, and I can do it consistently, then I am using it correctly. If I look at it simply to give me buy and sell signals in a vacuum, then I am one of those people who write long threads how TA is a waste of time lol.

TA works for some and not for others so I certainly would not push it on any one. But trendlines, triangles, rectangles, volume and even FIB retracements to an extent do help me better analyze price action and make trading decisions. In the end I still think it is the individual skill that really makes the difference, not TA or FA or even Jessica Alba (you knew I had to get her in somehow..)



Quote from momoneythansens:

Phil,

Not to nitpick or anything. You make money, I make money, everybody is happy but......I have to question how you use TA to work out where SET is/could end up given the nature of how it is calculated. That is, unless you apply TA to all 500 stocks and look at best/worst case scenarios.

You know I'm not a fan of TA anyway so probably some whizbang TA technique with a funny acronymn/named after some muppet that I'm not aware of.

Momoney.
More...
 
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