SPX Credit Spread Trader

Ask and ye shall receive. A few days ago I spoke about Charles Cottle's new book coming out at the end of January and mentioned that if people were interested I would see if I could get a discount for you. I spoke with Charles Cottle and wrangled a 20% discount for my peeps. His book covers in great detail hedging with options, synthetics and market maker strategies, with strong emphasis on the greeks and spread trading. I am eagerly waiting my copy of the book and strong recommend it. This book takes all of Coulda Woulda Shoulda and adds on to it.

If you are interested in the book or reading more about it, go to
http://www.riskdoctor.com/books.html

If you want to order the book and get the 20% discount, simply enter "coachphil20" when it asks for a promo code.

I think the actual release date is February 1st so you can order then or pre-order now.

Enjoy!
 
-Buying a debit spread financed by selling credit spreads-

As of today the SPX 1261.49
All calculations are based on splitting the bid and ask in the middle.

Buy 1 contract of 1250 SPX put for = 12.45
Sell 1 contract of 1230 SPX put for = 7.60
Total debit = 4.85 = $485
Now what I want to do: is to finance this debit by selling out of the money credit spreads. How far out of the money? And how many contracts?
It all depends on my outlook for the SPX for February expiration. The farther I go out of the money, the safer it is. But with this safety in distance, my no of contract has to increase and so is my margin (maintenance) respectively.

After many calculations I decided on the following credit spread:

Sell 6 contracts SPX 1200 put for = 3.55
Buy 6 contracts SPX 1180 put for = 2.50
Total credit= 1.05 x 600= $630.
On expiration if SPX settles at 1250 or higher my gain is $145 (less commission).
If SPX settles at less than 1250 my gain starts to get higher where it reaches the maximum if SPX settles at 1230 my gain will be $ 2145.
My breakeven point is 1198.45.
If my position gets in danger I could close it adjust it or roll it, depending on the situation and I could use the gain from the debit spread to adjust the position.

Plot this position on trade calculator and you could visually see the profit loss.
Let me know what you think !

Labib Imtanes
 
Let's see. This looks like a variation on the prego fly we've been discussing. So the maximum gain would be from 1200 to 1230. The margin required would be for the 6 credit spreads so that would be $12,000 (ignoring the credit received). So the return on this (assuming the position doesn't get into trouble) is between 1.2% and 17.9%. By comparison, if only the bull put spread is entered, then the return would be 5.25%.

I think I got that right, didn't I?

Quote from labib52

-Buying a debit spread financed by selling credit spreads-

As of today the SPX 1261.49
All calculations are based on splitting the bid and ask in the middle.

Buy 1 contract of 1250 SPX put for = 12.45
Sell 1 contract of 1230 SPX put for = 7.60
Total debit = 4.85 = $485
Now what I want to do: is to finance this debit by selling out of the money credit spreads. How far out of the money? And how many contracts?
It all depends on my outlook for the SPX for February expiration. The farther I go out of the money, the safer it is. But with this safety in distance, my no of contract has to increase and so is my margin (maintenance) respectively.

After many calculations I decided on the following credit spread:

Sell 6 contracts SPX 1200 put for = 3.55
Buy 6 contracts SPX 1180 put for = 2.50
Total credit= 1.05 x 600= $630.
On expiration if SPX settles at 1250 or higher my gain is $145 (less commission).
If SPX settles at less than 1250 my gain starts to get higher where it reaches the maximum if SPX settles at 1230 my gain will be $ 2145.
My breakeven point is 1198.45.
If my position gets in danger I could close it adjust it or roll it, depending on the situation and I could use the gain from the debit spread to adjust the position.

Plot this position on trade calculator and you could visually see the profit loss.
Let me know what you think !

Labib Imtanes
More...
 
Quote from rdemyan:

Let's see. This looks like a variation on the prego fly we've been discussing. So the maximum gain would be from 1200 to 1230. The margin required would be for the 6 credit spreads so that would be $12,000 (ignoring the credit received). So the return on this (assuming the position doesn't get into trouble) is between 1.2% and 17.9%. By comparison, if only the bull put spread is entered, then the return would be 5.25%.

I think I got that right, didn't I?
More...


Here is an approximate profit loss from OX tade calculator
It is a little different because OX calculator plugs the prices for you. I wish I had one where I could plug my own prices.


Estimated Commission $51.80


Not ready? See how it plays out with Virtual Trade



Profit & Loss Chart at Expiration
Stock Price Profit/Loss
$1,140.00 ($9,870)
$1,160.00 ($9,870)
$1,180.00 ($9,870)
$1,196.45 $0
$1,220.00 $2,130
$1,240.00 $1,130
$1,260.00 $130
$1,280.00 $130

Even though the margin is $12000 , the amount at risk is less.
using the above OX calculator the profit on margin =
0.01 > 0 .1775 monthly

profit on the risk =

0.013 > 0.22
all depends on settlement price.

Labib Imtanes
 
"Hussel"beck and Big Ben were both great while the two Jake's fell on their face:eek:
Should be a fun superbowl to watch...I'm rooting for both:D
Quote from rdemyan:

You got that right!


Either way, Hasselbeck's the quarterback of today's NFL. Go 'Hawks.
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Quote from DonnaV:

"Hussel"beck and Big Ben were both great while the two Jake's fell on their face:eek:
Should be a fun superbowl to watch...I'm rooting for both:D
More...

My steelers are on fire. Even I didn't have the confidence that I should've. Should be a great superbowl!
 
Coach:

What's your take on the market? I'm looking to potentially add one more bear call.

I'm particularly concerned about the Iran situation. I read an editorial over the weekend about how Iran could increase the price of oil to $100 without ever firing a shot. All they have to do is threaten ships in the Persian Gulf and create and even greater choke point at the strait, which they apparantly control militarily. And the Israelis say they'll attack if Iran doesn't stand down on it's nuclear ambitions.
 
Well we ar ebouncing rather nicely off of support today and chipping into Friday's fall as of now. There is a smoke of gloom on the horizon and I would advise more caution than normal. I currently have my 1190/1205 put strikes for FEB and happy to let them sit for right now as I do not see us dropping that far yet as long as support holds.

We are 25 days to FEB expiration so premiums are starting to shrink a bit. Be careful about chasing premium and moving to strikes closer than your comfort level. I am happy to just sit and watch and avoiding the nagging desire to get in not matter what will save you in the long run. I might miss out on some more FEB opportunities but I am playing it quite safe given all the moxed signals we are getting.

So for now support is holding and Friday certainly was some over panic. EXpect some sideways movement now as more earnings are digested in the next two weeks and we approach another Fed meeting. This will be great for current FEB positions as THETA will work to your advantage. MARCH positions will be on the radar in a week or so. AS for new FEB positions tread cautiously and avoid chasing premium at strikes too close to the sun.

It is not a bad thing to miss a month and prepare for the next one. Especially with increases in volatility.




Quote from rdemyan:

Coach:

What's your take on the market? I'm looking to potentially add one more bear call.

I'm particularly concerned about the Iran situation. I read an editorial over the weekend about how Iran could increase the price of oil to $100 without ever firing a shot. All they have to do is threaten ships in the Persian Gulf and create and even greater choke point at the strait, which they apparantly control militarily. And the Israelis say they'll attack if Iran doesn't stand down on it's nuclear ambitions.
More...
 
Well even though I only had a limpy bitch Iron Condor, I decided to close the Call Spreads since there was a nice profit even with today's run up. Remember originally I was filled on only 15 out of 125 for $0.35 and got out today for $0.10 for profit of $0.25 on 15 contracts which is $375. I am sure after commissions I can use the proceeds to get some Starbucks....


Quote from optioncoach:


-125 SPX FEB 1190/1205 Put Spreads @ $0.45

- 15 SPX FEB 1350/1365 Call Spreads @ $0.35

:)
More...
 
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