SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
So, MoMoney:
That was the first time I sat in on a ToS chat. I've read a few transcripts.
I was very surprised to hear that Tom Preston's favorite strategies are ICs and vertical spreads. I thought the pros (except pretty much Coach) frowned on these strategies.
I was even more surprised to hear that he lets his positions expire even if they are ITM. His spreads must be small and he plays probabilities.
It sounds like your familiar with his strategy. What's he doing that's different from what we're doing.
Thanks.
That was the first time I sat in on a ToS chat. I've read a few transcripts.
I was very surprised to hear that Tom Preston's favorite strategies are ICs and vertical spreads. I thought the pros (except pretty much Coach) frowned on these strategies.
I was even more surprised to hear that he lets his positions expire even if they are ITM. His spreads must be small and he plays probabilities.
It sounds like your familiar with his strategy. What's he doing that's different from what we're doing.
Thanks.
Basically, he does ICs more in line with 2:1 or 3:1 risk/reward which is a far cry from the 20:1 or 30:1 FOTM credit spreads here.
He doesn't leg in to the ICs in general and advocates around only 5% of account for each position...so smallish position sizes. The problem is finding instruments that aren't too correlated for your other positions!
He also is quite happy doing ICs in low IV environments. He's done a lot of analysis on changes in indices from expiration to expiration and feels that puts probabilities in his favour.
Joel Blom, another pro from ToS also has a similar approach. See here:
http://mediaserver.thinkorswim.com/transcripts/Sept_28_2005_Hedging_Market_Neutral_Positions.pdf
It's horses for courses again. There's more than one way to be successful and it's easy to be swayed by strongly voiced opinions if there isn't also a balancing opinion.
Hopefully now I don't sound like such a mad man when I said I didn't generally buy hedge insurance LOL:
http://www.elitetrader.com/vb/showthread.php?s=&postid=889829#post889829
MoMoney.
He doesn't leg in to the ICs in general and advocates around only 5% of account for each position...so smallish position sizes. The problem is finding instruments that aren't too correlated for your other positions!
He also is quite happy doing ICs in low IV environments. He's done a lot of analysis on changes in indices from expiration to expiration and feels that puts probabilities in his favour.
Joel Blom, another pro from ToS also has a similar approach. See here:
http://mediaserver.thinkorswim.com/transcripts/Sept_28_2005_Hedging_Market_Neutral_Positions.pdf
It's horses for courses again. There's more than one way to be successful and it's easy to be swayed by strongly voiced opinions if there isn't also a balancing opinion.
Hopefully now I don't sound like such a mad man when I said I didn't generally buy hedge insurance LOL:
http://www.elitetrader.com/vb/showthread.php?s=&postid=889829#post889829
MoMoney.
I actually missed the ToS chat today, was he discussing IC's and verticals? I remember it usually cause it is the same day as my radio show but was home sick today and was too busy watching the crappy new charts at MSNBC lol.
As for the pros views on ICs and verticals, I know a few professionals who routinely sell premium against the indexes. It has its drawbacks but like any strategy it all comes down to risk management and position selection. I do not know any that sell ICs consistently and I would not advocate that either. Easier to take directional biases given current trends and sell the opposite side of the trend. Like me doing now with only JAN puts.
I agree that no large pro would make a living consistently selling premium and I do not put 100% in this strategy as well. This way I could take a limited loss if I need to and will never blow up or be forced out of the game.
Anyway the next few days we will go into nice detail on lessons learned and pros and cons observed by all of us doing this strategy. I can bring all those comments together and save them for a consolidated analysis of this strategy for those that follow. I will also spend some time and find the gems in the thread and reproduce them for our review.
As for the pros views on ICs and verticals, I know a few professionals who routinely sell premium against the indexes. It has its drawbacks but like any strategy it all comes down to risk management and position selection. I do not know any that sell ICs consistently and I would not advocate that either. Easier to take directional biases given current trends and sell the opposite side of the trend. Like me doing now with only JAN puts.
I agree that no large pro would make a living consistently selling premium and I do not put 100% in this strategy as well. This way I could take a limited loss if I need to and will never blow up or be forced out of the game.
Anyway the next few days we will go into nice detail on lessons learned and pros and cons observed by all of us doing this strategy. I can bring all those comments together and save them for a consolidated analysis of this strategy for those that follow. I will also spend some time and find the gems in the thread and reproduce them for our review.
No it was primarily about gamma risk but inevitably it ended up with people picking Tom's brains about what his favorite strategies are etc.
Key for Tom's approach is minimal position sizes so blowing up is not really an issue.
Good luck with that...should only take a couple of minutes scanning through the 7.2 million posts accumumlated so far.
MoMoney.
Quote from ryank:
I got filled on the 1190/1200 a few days ago, for me it is nice to see the premium evaporating. I've been looking at different levels on the call side but haven't taken a swing yet. Anybody else going to play the call side for Jan?
ryan
Ryan,
I have the 1200/1190 put spread for .60, and the 1320/1330 call spread for .65. I took a chance and got in to them earlier in December. Hope I didn't screw up.
daved275