SPX Credit Spread Trader

I actually found your first posts last May or June where you referenced haircut margin. A question was posed to you as to how you get such margin and you never responded (most likely it got buried and you missed it). So you had a chance to let the cat out of the bag for us last JUNE and you let us down :( lol

Also you had a long absence from the thread so welcome back!

Quote from Dr. Zhivodka:

I think I informed you at least 8 months ago.

Sometimes it takes awhile for some.
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Hi guys

I've been watching this thread for a little while and learning lots. Hope you don't mind if a new comer jumps in with a couple of Q's. I have been mostly trading credit spreads or iron condors based on using advisory services for the last four or five months, but I have also made a few trades out on my own and am slowly becoming more independent. Any comments about the trade I am looking at or help on my specific Q will be most appreciated.

I am currently looking at a March OEX IC. I have attached the graph below. It has long wings out over previous support and resistance lines, and on the down-side is well below the EW5 projection. It shows around an 18% ROI (credit to margin requirement). My question is about standard deviation. I am now sure how to use SD in analysing a possible trade. I am trading with OX and they show Historic volatility on the bottom of the quote detail page. I thought this was a direct measure of SD but when I asked OX they said it was actually variance (ie SD squared). Current 30 day variance for OEX is 9.56, or a SD of approx 3. What does this number mean in relation to todays trade price and how do you use this to help think about the risk involved in the IC? Any other comments on the IC welcome.

Cheers

M
 

Attachments

oops - just realised the graph doesn't actually show the details of the IC which are:- OEX March 520/530/595/605

(PS did anyone else feel like they where about to make a complete fool of themeselves when they first started posting onto message boards? - I'll get over it, learning is more important then feeling exposed!)

M
 
Dr. Zeeee! What's new? How's the trading? Think we're headed back to vols in the mid-teens?

Quote from Dr. Zhivodka:

Actually you have exactly backwards.

You want to be prop when you're little and private when you're big.

You'll see what I mean.

:D
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Coach,

When you go props, I assume you'll trade as B/D. Then you have to buy at ask and sell at bid. How would you deal with that on your current strategy where you can sell near the middle ? I think I might have misunderstand something here.

Thanks,
 
It's good man. Lot's of Stat-Arb (domestic) and True-Arb (domestic and international) and options work.

You?

Hey I'd love to see vols in the big teens again. And we will sometime. The one true fact about Vol is that low always leads to high Vol and high will always lead to low.

Cheap Vol buyers will have their day again...sometime. They're trading Vol around core gamma positions now....waiting for the pop.

Best,
Dr. Z



Quote from andysmith:

Dr. Zeeee! What's new? How's the trading? Think we're headed back to vols in the mid-teens?
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Quote from optioncoach:

Even in the journal you can see I went from 60 contract spreads to 200 contract spreads. lol
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So, did the Saudi Princes finally pay up so you could increase the size of your trades lol. Were you able to increase the number of contracts because you have more of your own capital or are you risking more? Or are you using other peoples money?

ryan
 
Coach
I was doing some research on the repair strategies and i came up with this BOX strategy. My head is spinning from the imagining all these outcomes. could you please walk me through?.

Lets take your example:
Credit spread of 1200/1190 PUTS when SPX is at 1260.Its falling and is close to 1200.I panicked and at this stage if i put in a CALL Credit spread of 1190/1200, will it stop the rapid loss of capital and lock in a small loss instead?.
 
Not sure coach is around today, so you could be waiting a while for a response from him. In the mean time:

Since you know what a BOX is, you'll also know it's a locked position. You'll also know that it's equivalent to being long synthetic at one strike and short synthetic at another.

In this instance, you have acheived exactly the same thing as just closing the original spread for a loss.

What you have to consider when BOXing versus closing is the b/a and liquidity issues on the spreads as well as the price naturally! If you can get the BOX on for less than closing then it might be worth doing. Naturally you have to be aware of cost of carry etc. to make those calculations.

I do not consider this a repair strategy.

Normally, this strategy works best the other way around in my experience i.e. when you have an ITM debit spread and you want to BOX it with an OTM credit spread rather than closing. This is because the OTM credit spread might have better spreads and liquidity i.e. less slippage.

Make of that what you will.

MoMoney.

Quote from Heatheranderson:

Coach
I was doing some research on the repair strategies and i came up with this BOX strategy. My head is spinning from the imagining all these outcomes. could you please walk me through?.

Lets take your example:
Credit spread of 1200/1190 PUTS when SPX is at 1260.Its falling and is close to 1200.I panicked and at this stage if i put in a CALL Credit spread of 1190/1200, will it stop the rapid loss of capital and lock in a small loss instead?.
More...
 
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