SPX Credit Spread Trader

Quote from ChrisM:

Agree,

Besides trading our program now, we have been working to enginner another option program, based on credit spreads. My problem at the moment is that in the end of the day, it brings worse results, because to achieve similar profitability level I have to sell them closer to ATM.
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I don't see how that makes sense in reality for the SMALL RETAIL TRADER. Sure if you sell an option naked you get a better credit per contract than a credit spread, but your ROE is significantly worse. Selling naked with Reg T you are tying up a significant amount of money when compared to the margin requirements on a credit spread. This means that your credit on the naked option must be huge compared to the credit on the spread. As coach said, it also requires that you have more than a few hundred thousand dollars behind you.

Anyway, I haven't taken the time to do them math on the ROE, but a knee jerk reaction says that it doesn't make sense for the retail trader.
 
Hi Coach,

I found the posted Q &A about the risk based haircut margin requirements illuminating. I would beextremely interested in seeing the calculations as they would apply to uncovered and covered index options.

Cody
 
Quote from Cache Landing:

I don't see how that makes sense in reality for the SMALL RETAIL TRADER. Sure if you sell an option naked you get a better credit per contract than a credit spread, but your ROE is significantly worse. Selling naked with Reg T you are tying up a significant amount of money when compared to the margin requirements on a credit spread. This means that your credit on the naked option must be huge compared to the credit on the spread. As coach said, it also requires that you have more than a few hundred thousand dollars behind you.

Anyway, I haven't taken the time to do them math on the ROE, but a knee jerk reaction says that it doesn't make sense for the retail trader.
More...

I cannot talk about the same all the time neither disclose details of strategy we are using, however I traded few small accounts in the past myself using ES for instance, naked options included.
No need to prove anything, but talking all the time what I have in my statements is not true is just time waste.

I am not in position to convince anybody, that is why I did not answer to coach`s post.

Not interested in further discussion.
 
You are missing the point. No one is making a statement that you are lying or one could not trade naked options in a smaller account. But for retail traders, an exception is not the rule. Your situation is not the rule but the exception. Small retail traders should not be trading naked options on the SPX. Remember most small retailers have no experience with futures and therefore will not be trading ES or SP. Also the subject was SPX, so experiences with ES or SP is changing the assumption.

I am trying to keep in mind the audience here and I find it much easier to advise against naked options on the SPX across the board than find the few exceptions to the rule. One person's experience certainly does not negate the tremendous risk and margin requirements of selling naked options on the SPX. Since the SPX was the point of the discussion, I cannot speak to whether the average person has a good understanding of futures to trade options on futures or an account with the capabilities.

It is not a question of convincing anyone, it is the issue that the average retailer is not equipped with the capital or expertise to trade naked options on the SPX and therefore, if they choose to sell premium on the SPX, I advise credit spreads or nothing.

Quote from ChrisM:

I cannot talk about the same all the time neither disclose details of strategy we are using, however I traded few small accounts in the past myself using ES for instance, naked options included.
No need to prove anything, but talking all the time what I have in my statements is not true is just time waste.

I am not in position to convince anybody, that is why I did not answer to coach`s post.

Not interested in further discussion.
More...
 
Quote from optioncoach:

You are missing the point. No one is making a statement that you are lying or one could not trade naked options in a smaller account. But for retail traders, an exception is not the rule. Your situation is not the rule but the exception. Small retail traders should not be trading naked options on the SPX. Remember most small retailers have no experience with futures and therefore will not be trading ES or SP. Also the subject was SPX, so experiences with ES or SP is changing the assumption.

I am trying to keep in mind the audience here and I find it much easier to advise against naked options on the SPX across the board than find the few exceptions to the rule. One person's experience certainly does not negate the tremendous risk and margin requirements of selling naked options on the SPX. Since the SPX was the point of the discussion, I cannot speak to whether the average person has a good understanding of futures to trade options on futures or an account with the capabilities.

It is not a question of convincing anyone, it is the issue that the average retailer is not equipped with the capital or expertise to trade naked options on the SPX and therefore, if they choose to sell premium on the SPX, I advise credit spreads or nothing.
More...

Ditto
 
although I've sold some naked puts on stocks I don't mind owning I've also found that if you go a little otm say 10 or 15pts it only cost .05 or.10 for the spread thus your savings in margin makes the spread a no brainer. As McMillian says..."the spread is NEVER the worse choice:)"
Quote from Cache Landing:

I don't see how that makes sense in reality for the SMALL RETAIL TRADER. Sure if you sell an option naked you get a better credit per contract than a credit spread, but your ROE is significantly worse. Selling naked with Reg T you are tying up a significant amount of money when compared to the margin requirements on a credit spread. This means that your credit on the naked option must be huge compared to the credit on the spread. As coach said, it also requires that you have more than a few hundred thousand dollars behind you.

Anyway, I haven't taken the time to do them math on the ROE, but a knee jerk reaction says that it doesn't make sense for the retail trader.
More...
 
Naled puts on stocks is a different story since the margin is much less and if you do not mind owning the underlying you are accepting the risks. As always if you know and accept the risks than buyer or seller beware lol. I dabble in those once in a blue moon... very blue moon since I really do not l ike owning stocks anymore lol. Except CEFs.

Quote from DonnaV:

although I've sold some naked puts on stocks I don't mind owning I've also found that if you go a little otm say 10 or 15pts it only cost .05 or.10 for the spread thus your savings in margin makes the spread a no brainer. As McMillian says..."the spread is NEVER the worse choice:)"
More...
 
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