ok ok...but JA's butte does nothing for me...if you have an Antonio Bandares shot.....
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
rdemyan,
I think that because of settlement uncertainty there is still a lot of premium in ATM short options right up to the close. On the SPX I would consider 5 pts. to be ATM. This may not always be the case but we can watch it closely this Thurs. and how it plays out. I think if I were 15 or 20 points away on Wed. I would feel it too close and look to exit.
I think that because of settlement uncertainty there is still a lot of premium in ATM short options right up to the close. On the SPX I would consider 5 pts. to be ATM. This may not always be the case but we can watch it closely this Thurs. and how it plays out. I think if I were 15 or 20 points away on Wed. I would feel it too close and look to exit.
Unfortunately, I won't have access to a computer on Thursday. If you wouldn't mind it would be great if you could document some of the SPX option prices in the morning, throughout the day and an hour before closing. Probably ATM, 5, 10, 15 and 20 OTM. I guess once you select those strikes in the morning, you'll have to stick with them if the SPX changes dramatically. Not sure how to do it otherwise.
I agree with you that you should get out if you are 15 or 20 points away (I would probably use 20 points because of the triple or is it quadruple witching and because of the typcial Santa Claus rally). I was just thinking that you might be able to wait until the last hour to maximize your profit (assuming no major adverse move towards your short strike). Let's see how it plays out.
Thanks.
I agree with you that you should get out if you are 15 or 20 points away (I would probably use 20 points because of the triple or is it quadruple witching and because of the typcial Santa Claus rally). I was just thinking that you might be able to wait until the last hour to maximize your profit (assuming no major adverse move towards your short strike). Let's see how it plays out.
Thanks.
In addition to the good answer you got I would reiterate that buying the lowest IV option only gives you an advantage with respect to IV if an increase in IV is expected. You would also need to be right directionally to an extent if you are just buying a put or a call. If the index moves lower and IV increases then delta loss on a long call outweighs any IV increase. If the index moves higher, delta gain outweighs slight IV decrease that accompanies a gain in the SPX. So it is not just IV, but delta and theta that would matter and be relevant in your decision.
Hart you raise a good point and in a volatile market environment the short strike 5 poins or less away could retain some value as MM hedge a possible wide SET. I have never held anything less than 10 points so I do not have factual data on option values of strikes <5 points on THU and in JULY I am sure they were pretty low and in NOV I am sure they were pretty high. So your point could be quite relevant on a wild THU and with a potential for after market moves. Given the fact that it would be hard to predict what kind of THU or post market/pre-market Fri you could have I would probably amend the rules to combine <10 and <5 points away together. Honestly if you are less than 10 points with one day to expiration, best bet is to close out the spread first thing THU unless it is a down day and might as well let it shrink some.
I have never held any position to expiration that was even close to 10 points away with the exception of my JULY expiration which was probably about 13 or 14 points away from my shoddy memory.
So for those who wish to avoid that potential of juiced up THU even though MM cannot really price them too high otherwsie the big boys would sell premium hard going into SET, you could simply use 10 points as your window to get out since theta shoudl ensure a profit in the spread.
I have never held any position to expiration that was even close to 10 points away with the exception of my JULY expiration which was probably about 13 or 14 points away from my shoddy memory.
So for those who wish to avoid that potential of juiced up THU even though MM cannot really price them too high otherwsie the big boys would sell premium hard going into SET, you could simply use 10 points as your window to get out since theta shoudl ensure a profit in the spread.
Quote from Hart9000:
Coach, we need a correction here.
If the index is less than 5 points from the short strike on Thurs. there is no way to get out for .05 It more likely will cost you several times the credit received and you will get out at a loss.
That may tempt some to hang on and hope for the best. What happened last month could easily happen again.
On Thurs. expiration, Nov. 17 the SPX opened the day at 1231, closed at 1242, and the set the next morning was 1254. No position was safe unless it was at least 24 pts away from the Thurs. open.
Always have to give props to those who share with us a little piece of JA whenever it is appropriate...Sometime has passed since our last visit and in this volatile day of FOMC meetings. retail sales numbers, expiration week, SET values and watching our short spreads decay, the link below reminds us of what is truly important....
I think it would be a valuable contribution to the SET discussion and would appreciate it as would others...
Quote from Hart9000:
rdemyan,
I should be available to track this on Thursday. I'll make a report on Friday after settlement.
Going into the close should be interesting. If ATM strikes are selling for .05 I will be loading up on straddles to play the set.
