SPX Credit Spread Trader

sorry Heather:( didn't mean to scare you!!! I'm actually thrilled to have another chick particpate on this thread...tired of competing with JA:p
Quote from Heatheranderson:

Guys
Here are my positions.
Bear Call on RUT 750/760
Bear Call on SPX 1320/1330

Donna
Please stop scaring me. remember this is my first time and i need support?.

Coach
i am not concerned about SPX but this RUT is looking dangerous.
what do you think?.
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Heather one suggestion on your RUT is to sell the bull put spread fairly far otm to pay for the possible roll...the probability is kinda high %24 of your short call expiring itm however the good news is the RUT is getting long in the tooth and should retreat...from past experience as soon as you put on the bull put spread the market retreats:p
 
Hi Heather and Donna

The RUT does look a bit up close and personal, and is in blue skies territory which would worry me. I have been making protection of my capital my No. 1 priority (after some early 'learning' experiences on directional trades....pity learning can be such a painful experience) so I tend to close out or roll ill-behaving spreads at close to break-even or with a minimal loss, which is OK 'cause I live to play another day. However, this is much easier if you have a bit of time decay on your side. Can't see how long you have been in this spread?

Ps Include one more chick trader in the tally and happy to see some gals on the board

Cheers

M
 
Trumpy...you girl?:D yeah...think girls will rule???:p
Quote from Trumpy:

Hi Heather and Donna

The RUT does look a bit up close and personal, and is in blue skies territory which would worry me. I have been making protection of my capital my No. 1 priority (after some early 'learning' experiences on directional trades....pity learning can be such a painful experience) so I tend to close out or roll ill-behaving spreads at close to break-even or with a minimal loss, which is OK 'cause I live to play another day. However, this is much easier if you have a bit of time decay on your side. Can't see how long you have been in this spread?

Ps Include one more chick trader in the tally and happy to see some gals on the board

Cheers

M
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Coach...this one's for you...
Quote from Trumpy:

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
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I have no idea what OX told you but the value for volatility, be it historical ior impplied is the standard deviation and not the variance. TO be honest, the variance is meaningless since the average person without statistics does not know how to interpret it. Standard deviation is a little more "touchable". So I do not know what that run around was from OX lol.

Be careful when trading an advisory service if you are not made privy to their thought process. You will be blindly following their signals and not learning on your own how to make the trades. It would be the same as people here simply following what I do but I at least try to explain the reasoning. YOu saud you are independently going out on your own so you are making efforts to learn.

I would not personally recommend Iron Condors month to month. It is much easier to simply do credit spreads based on your analysis of the markets and roll into credit spreads where appropriate.

For example, I have repeteadly said that Jan and Feb look to be up months so I am only selling put spreads. So far it is holding up and it makes things less stressful since I can sit back and wathc the huge moves higher without any fear since I am playing the directional bias. I do not think ICs are good for every month of the year since it is possible to do analysis and determine which direction is more likely and sell spreads on the other side of it.

So try not to fall in the high % return trap of IC and do them every single month. It is one thing to leg into them when the time is right but you shoudl also take a directional bias in the market when needed. Basically you cannot tell the market what you want it to do (i.e., STAY in a range!). It is much easier for the market to tell you what it wants to do (i.e, I feel like floating higher perhaps) and then trade off of it.




Quote from DonnaV:

Coach...this one's for you...
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Coach and others,

It would be interesting, educational, and informative to hear from people in this forum as to what steps (trades) one would take if a real major-market-moving event occured.... ie, nuclear attack, bio-chemical.... something which would abruptly shock the markets.....

Moreover, if a large percentage of your capital say is in OTM put credit spreads, or directionally long (as in Mutual Funds, IRAs, etc)

A discussion could really shed some light into areas people may or may not have considered... or developed a trading plan for...

Coach... your insights would be appreciated.

Thanks,

Murray
 
Well the first honest answer is that there is nothing you can do in an earth shattering moment that crashes the market. The one step you can take ahead of time is to ensure that 100% of your capital is not in credit spreads so you do not blow up your account. ALso if the market takes a huge drop and forces me ITM, then I either take the position off immediately (time value should hopefully prevent a full loss being taken) convert to a FLY or adjust lower on the expectation of a pull back, or keep rolling down the calls to reduce the net loss. With such an event, a so-called black swan event, you can only stop the bleeding and get out. If you are not 100% fully invested then you have already protected yourself.

As many know I do not advocate 100% in such spreads and to be safe, keep it to no more than 50%. Of course you can move up and down as conditions permit. I personally keep most of my portfolio in closed-end funds (diversified such that the beta is practically 0), t-bills and cold hard CASH for adjustments and random option trades.

Basically the idea is to complement my portfolio pieces. FOr example, the diversified closed-end funds protect my capital and provide consistent monthly income which can be reinvested or used to offset any losses from option positions in a given month or for the year on a whole. The CEFs are completely uncorrelated with the market so that they do not suffer from market swings like the spreads could. So having separate pieces of your portfolio which are not correlated, or perhaps inversely correlated to better diversify your risk. If all pieces are correlated than you are magnifying your risk on bad days. I always keep cash handy so that I can pay for adjustments if needed, or take on other option positions as I want. A small position in t-bills is keep some cash safe and earn some interest. the actual percentages are up to you and there is no magic formula. I just like the diversity.

Oh and making my wife keep working so we have a steady check never hurt LOL...... (shhhh here she comes...crap)


Quote from Sailing:

Coach and others,

It would be interesting, educational, and informative to hear from people in this forum as to what steps (trades) one would take if a real major-market-moving event occured.... ie, nuclear attack, bio-chemical.... something which would abruptly shock the markets.....

Moreover, if a large percentage of your capital say is in OTM put credit spreads, or directionally long (as in Mutual Funds, IRAs, etc)

A discussion could really shed some light into areas people may or may not have considered... or developed a trading plan for...

Coach... your insights would be appreciated.

Thanks,

Murray
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One of the thing I do every single month as a hedge against a catastrophic event, is to sell a good number of bull put spreads on the XAU. Yes, I know it is only traded on the Philly, and it was known as thinly traded, but check it out now. For the last two years as gold has rallied , and as geopolitical climates have become more dangerous, the amount of open interest has greatly increased. I frquently get filled at a nickel better than the mid at the end of the trading day. My premise here is that a dirty bomb, anywhere, another strike on the US, and any other bad event will have lots of traders and fund managers running for the precious metals. Also , the multitudes of people with any means in India and China like investing and holding gold. The XAU is made up of the big players in mining here in the US , so I have been nicely hedged , and making money on the hedge by allowing it to expire worthless each month. The chart is evaluated like any other trade, support , resistance, delta, prob of expireing, and any other indicator you might want to use. Fundamentally, I dont see gold deviating from the trend, and if it did, it would become quite easily identified.
 
You know Murray the ironic thing is that it has never been the shocks ie 1987, 9/11 etc as much as the prolonged bear of 2000-2002 that hurt us...agree totally with coach and extractor to be proactive but in trying to anticipate the "black swan" you may miss out on terrific gains that would have cushioned the drop.
 
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