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SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
Quote from DonnaV:
can you explain convergence gains? tia donna
Gains near expiration on your hedge and primary position. Analogous to owning a fly or selling a straddle with the body strike = your [at risk] credit spread strike. Convergence gains[delta bleed] won't occur until the final 7d to expiration in the case of these credit spreads.
got it....Thanks
Quote from riskarb:
Gains near expiration on your hedge and primary position. Analogous to owning a fly or selling a straddle with the body strike = your [at risk] credit spread strike. Convergence gains[delta bleed] won't occur until the final 10d to expiration in the case of these credit spreads.
Coach (and everyone else):
I've noticed that a 60-day spread has 2x the premium of a 30-day spread (was expecting around 1.7x). I'll post examples later, but has anyone else noticed this? I'm thinking of doing 60-day spreads (i.e. skip one expiration) since vol is so low, and this will also allow me to move further OTM.
I've noticed that a 60-day spread has 2x the premium of a 30-day spread (was expecting around 1.7x). I'll post examples later, but has anyone else noticed this? I'm thinking of doing 60-day spreads (i.e. skip one expiration) since vol is so low, and this will also allow me to move further OTM.
Coach,
I believe you play the directional swings (ones lasting three or four days) in SPX with ES... are you still doing that? Do you use any other method to play directional swings?
Do you (or anyone else) use synthetic calls/puts (eg: long ES+long put) to capture a directional move? I have not tried this but am looking at it...
I believe you play the directional swings (ones lasting three or four days) in SPX with ES... are you still doing that? Do you use any other method to play directional swings?
Do you (or anyone else) use synthetic calls/puts (eg: long ES+long put) to capture a directional move? I have not tried this but am looking at it...
Just curious, why would you consider the synthetic over the natural unless prices were significantly different? You have two transaction costs in the synthetic call you cited for example.
I could certainly see converting an existing position into a synthetic based on what market conditions and your sentiment dictated and if you could get that synthetic position for less than fair value etc. but I'm not sure that's what you mean by using the synthetic for capturing directional moves.
Perhaps I need clarification.
Momoney.
I could certainly see converting an existing position into a synthetic based on what market conditions and your sentiment dictated and if you could get that synthetic position for less than fair value etc. but I'm not sure that's what you mean by using the synthetic for capturing directional moves.
Perhaps I need clarification.
Momoney.
Quote from andysmith:
Coach,
I believe you play the directional swings (ones lasting three or four days) in SPX with ES... are you still doing that? Do you use any other method to play directional swings?
Do you (or anyone else) use synthetic calls/puts (eg: long ES+long put) to capture a directional move? I have not tried this but am looking at it...
Yes but can you go twice as far OTM?
When you're that far out (in time), I would suggest it's more of a vega play. VIX is now 10.18! It is likely you will be hurt by vega even ignoring delta. Are you planning on holding for only 30 days? In which case the positions will not gain much from time decay. Sure this means you're protected from the worst of short gamma too but I can't see how you're going to make any money unless you're relying on delta - but then you need to know which direction things are going in and there are possibly better ways of making money IMHO if you do know that. Do you?
If you're planning to hold till near expiration then the range of probable finishing prices is twice as large (roughly) as a 30 day spread, so you really do need to start out twice as far OTM to get the same probability characteristics...unless you're not bothered by that and base strike selection on support/resistance etc. but can you predict 60 days into the future with that degree of certainty especially given it's a new year? I don't know, perhaps you can.
[EDIT] You also have to contend with wider b/a spreads, though 60 days out shouldn't be too bad.
When you provide examples, we might be able to thrash it through and see what's what.
Momoney.
When you're that far out (in time), I would suggest it's more of a vega play. VIX is now 10.18! It is likely you will be hurt by vega even ignoring delta. Are you planning on holding for only 30 days? In which case the positions will not gain much from time decay. Sure this means you're protected from the worst of short gamma too but I can't see how you're going to make any money unless you're relying on delta - but then you need to know which direction things are going in and there are possibly better ways of making money IMHO if you do know that. Do you?
If you're planning to hold till near expiration then the range of probable finishing prices is twice as large (roughly) as a 30 day spread, so you really do need to start out twice as far OTM to get the same probability characteristics...unless you're not bothered by that and base strike selection on support/resistance etc. but can you predict 60 days into the future with that degree of certainty especially given it's a new year? I don't know, perhaps you can.
[EDIT] You also have to contend with wider b/a spreads, though 60 days out shouldn't be too bad.
When you provide examples, we might be able to thrash it through and see what's what.
Momoney.
Quote from andysmith:
Coach (and everyone else):
I've noticed that a 60-day spread has 2x the premium of a 30-day spread (was expecting around 1.7x). I'll post examples later, but has anyone else noticed this? I'm thinking of doing 60-day spreads (i.e. skip one expiration) since vol is so low, and this will also allow me to move further OTM.
also my main reason is in the past 8 years there is only one year (the big bear 01/02) that Jan was lower than Dec .
Actually in the past seven years Janu settlments were down 2 out of 7 times:
gain loss
Jan 1999 = 43.36
Jan 2000 = 30.69
Jan 2001 = 33.82
Jan 2002 = -- 19.77
Jan 2003 = 17.22
Jan 2004 = 45.91
Jan 2005 = -- 13.68
Labib Imtanes
Actually in the past seven years Janu settlments were down 2 out of 7 times:
gain loss
Jan 1999 = 43.36
Jan 2000 = 30.69
Jan 2001 = 33.82
Jan 2002 = -- 19.77
Jan 2003 = 17.22
Jan 2004 = 45.91
Jan 2005 = -- 13.68
Labib Imtanes
MoMoney,
It's entirely possible that my logic is flawed, but here's what I'm looking at: if I expect SPX to go up 20 points in the next week, I can go long ES contracts. I usually put a stop loss in when I go long. Instead of the stop loss I can purchase SPX puts and cap my downside... that's what I was asking.
It's entirely possible that my logic is flawed, but here's what I'm looking at: if I expect SPX to go up 20 points in the next week, I can go long ES contracts. I usually put a stop loss in when I go long. Instead of the stop loss I can purchase SPX puts and cap my downside... that's what I was asking.
Quote from momoneythansens:
Just curious, why would you consider the synthetic over the natural unless prices were significantly different? You have two transaction costs in the synthetic call you cited for example.
I could certainly see converting an existing position into a synthetic based on what market conditions and your sentiment dictated and if you could get that synthetic position for less than fair value etc. but I'm not sure that's what you mean by using the synthetic for capturing directional moves.
Perhaps I need clarification.
Momoney.