[Fainted]
SPX Credit Spread Trader
- Thread starter El OchoCinco
- Start date
ASSUMING everything else remained constant.... which aint gonna happen.
Coach,
Exactly.....
In your example... .40/$10 margin is 4%, .05/$1 margin is 5% return. This is exactly what we were pointing out. The percent return for the same spread appears to be better for most strikes on a compareable XSP spread.
And with strikes a little closer.... the return is even better.
Exactly.....
In your example... .40/$10 margin is 4%, .05/$1 margin is 5% return. This is exactly what we were pointing out. The percent return for the same spread appears to be better for most strikes on a compareable XSP spread.
And with strikes a little closer.... the return is even better.
Ahhh but here is where return is misleading..... $$ counts in and my example I make more money with the SPX than the XSP using the same margin. Even at higher strikes, the return might be better but using the same margin amount I would make less money on the margin used. I do not think you can compare returns to the spread. The return that matters is the return on your margin.
I still think SPX is better for selling premium since the return on my margin is higher at deep OTM strikes which is right in my safety zone.
I am not making a definitive statement of SPX v. XSP, but in selling deep OTM credit spreads, the SPX still seems to have more meat on the bones for my purposes. AS for buying spreads, I certainly like the XSP.
I still think SPX is better for selling premium since the return on my margin is higher at deep OTM strikes which is right in my safety zone.
I am not making a definitive statement of SPX v. XSP, but in selling deep OTM credit spreads, the SPX still seems to have more meat on the bones for my purposes. AS for buying spreads, I certainly like the XSP.
If you think you've found a difference between the SPX and XSP, there be arbitrage in them thar strikes...shhh don't tell anyone.
Buy the cheaper one and sell the more expensive one.
Interestingly, there does seem to be a difference which I thought would have disappeared by now but commissions and fills seem to kill any chance of taking advantage of it.
Alas, my humble and understated opinion of XSP in terms of fills is simply: It sucks the big one.
Comparing like for like i.e. taking index size into consideration - I have experienced massive slippage. However, I do get filled in less than a day which is faster than my experiences with SPX lol
You may have fared better with both.
MoMoney.
Buy the cheaper one and sell the more expensive one.
Interestingly, there does seem to be a difference which I thought would have disappeared by now but commissions and fills seem to kill any chance of taking advantage of it.
Alas, my humble and understated opinion of XSP in terms of fills is simply: It sucks the big one.
Comparing like for like i.e. taking index size into consideration - I have experienced massive slippage. However, I do get filled in less than a day which is faster than my experiences with SPX lol
You may have fared better with both.
MoMoney.
For those that are interested on the debate between whether options are priced in terms of trading days vs. interest rates accruing in terms of calendar days etc. and the "weekend effect" in general for theta, I was hunting around for where I first came across the concept, but couldn't find it.
However, here is an interesting paper that relates to the DAX in Germany which concludes pretty much the opposite happens:
http://www.shh.fi/services/biblio/papers/fulltextwp/448-951-555-675-9.pdf
One thing to take away from this is that it clearly differs from market to market and instrument to instrument. So to re-iterate my earlier suggestion, best to do one's own study.
Another general commentary on the weekend effect here:
http://www.thestreet.com/options/options/10257837.html
This suggests that the decay is split between Friday and Monday. Certainly casual observations seem to confirm this and Monday afternoon always seems to be an "interesting" time for option prices, at least on the instruments that I follow.
The above is pertinent to normal two day weekends and not three day weekends.
MoMoney.
However, here is an interesting paper that relates to the DAX in Germany which concludes pretty much the opposite happens:
http://www.shh.fi/services/biblio/papers/fulltextwp/448-951-555-675-9.pdf
One thing to take away from this is that it clearly differs from market to market and instrument to instrument. So to re-iterate my earlier suggestion, best to do one's own study.
Another general commentary on the weekend effect here:
http://www.thestreet.com/options/options/10257837.html
This suggests that the decay is split between Friday and Monday. Certainly casual observations seem to confirm this and Monday afternoon always seems to be an "interesting" time for option prices, at least on the instruments that I follow.
The above is pertinent to normal two day weekends and not three day weekends.
MoMoney.
Last post for the year on this thread from me 
As solicited by Phil, Lessons learned 2005 (and continuously re-learning):
MoMoney.
As solicited by Phil, Lessons learned 2005 (and continuously re-learning):
- Under all circumstances, at all costs, with all powers at one's disposal, IGNORE any and every form of market commentary and forecasts that comes your way. This includes any market commentary from the following sources: free, paid-for (especially..but why would you?), on message boards, on forums, from "experts", from market wizards, from whizbang black box neural networks, in your inbox, in your mail, on your TV, on your radio, in your dreams, from your dog, from the stars.
Rally? Rally who? Huh? Sir Walter Rally? Rally my ass. What rally? Racing car rally when? This Tuesday. Huh? Rally up Jessica Alba, that's what rally. 1285 by expiration...definitely.
- See 1.
MoMoney.
Phil,
I need some further explanation!
The example you gave which I repeated is figured on return on margin. Your 4% return on SPX is on $10 margin, the 5% return on the XSP is on $1 margin.... but it is about return on margin... apples to apples.
If you bought 10 XSPs you would still retain a 5% return now on the exact $10 margin.... less a little more commission.
Please clear my cluttered perception here.
Thanks,
Murray
I need some further explanation!
The example you gave which I repeated is figured on return on margin. Your 4% return on SPX is on $10 margin, the 5% return on the XSP is on $1 margin.... but it is about return on margin... apples to apples.
If you bought 10 XSPs you would still retain a 5% return now on the exact $10 margin.... less a little more commission.
Please clear my cluttered perception here.
Thanks,
Murray
Okay I lied, one last post:
Not quite:
100 SPX Spreads for $4000 (ROM: 4%)
1000 XSP Spreads for $5000 (ROM: 5%)
Figure 1$ per contract commissions:
One Way:
100 SPX Spreads for $3800 (ROM: 3.8%)
1000 XSP Spreads for $3000 (ROM: 3%)
Round-trip (for closing/adjusting)
100 SPX Spreads for $3600 (ROM: 3.6%)
1000 XSP Spreads for $1000 (ROM: 1%)
Commissions really are a killer when trading spreads that narrow. Return on margin net of commissions is probably a better apples to apples comparison IMHO.
MoMoney.
Not quite:
100 SPX Spreads for $4000 (ROM: 4%)
1000 XSP Spreads for $5000 (ROM: 5%)
Figure 1$ per contract commissions:
One Way:
100 SPX Spreads for $3800 (ROM: 3.8%)
1000 XSP Spreads for $3000 (ROM: 3%)
Round-trip (for closing/adjusting)
100 SPX Spreads for $3600 (ROM: 3.6%)
1000 XSP Spreads for $1000 (ROM: 1%)
Commissions really are a killer when trading spreads that narrow. Return on margin net of commissions is probably a better apples to apples comparison IMHO.
MoMoney.