SPX Credit Spread Trader

are you selling ATM or OTM? tia
Quote from Extractor:

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.
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Donna, I do it alot like SPY and SPX, OTM and hiding behind support, and low prob of expiring in the money. You can usually get .50 way out there, and put on what you need to hedge, and basically still have a money making strategy going.
 
Just wanted to add one more thing, since Donna got me thinking. In a steep trend like we see in XAU, you could certainly be alot more aggressive. However , it depends on your definition of what you are hedging. At the tender age of 63, I'm into conservative treasuries, zeros, and cd type investments with very few individual stocks anylonger. My purpose is mainly to hedge and add to my trading portfolio that is strictly involved with options. I believe if you were trying to hedge a larger portfolio , a mil or more , this may not bee what you'd be interested in.
 
Hi all

Long long long time reader, first time poster. Great thread, thanks !

I was very interested in the margin required to convert your bullish credit spread to a "fly" if infact you thought the crap might hit the fan.

I checked with a broker and ran by them margin requirements on such a trade:

Questions to broker:

"...if i traded 1 bullish out of the money credit spread lets say 660/650 puts my margin would be $1000 per 1 contract...

...if I then added to my positions 1 bearish debit spreads lets say 670/660 puts, in real terms my net risk profile has changed and my margin should be reduced as in reality I really cant loose the whole $1000 if the market tumbles becuase I have parked above the credit sppread a bearish debit spread...

...in this the case will my intial margins be reduced and if so how are they reduced or am i still locked into the margin of $1000 for the credit spread plus now the cost of my new debit spread outlay..."

Broker response:

"...Our margins are calculated live on the fly so as your positions change we will work to get you to the lowest allowable NASD margins. In this case you will turn a short put vertical into a long butterfly and there will be no margin on this as you can not lose more than you paid for the spread..."

Now, if I understand the fundamentals of converting to the PREGO FLY as discussed here then a reduction in margin requirements is possible for a retail customers...

The broker was Thinkorswim (TOS).

I hope that has helped ?

SteveJ
 
That is why it always helps to trade options with people who understand options. So in cases of unbalanced FLYs you can still get the FLY net debit requirement instead of them treating it as two spreads with 2 different margin requirements. I think with ToS and OX a phone call to compliance will get you there. Then you credit margin is freed up for more spreads to salavage the position with deeper OTM credit spreads along with the PREGO FLY.


Quote from SteveJ:

Hi all

Long long long time reader, first time poster. Great thread, thanks !

I was very interested in the margin required to convert your bullish credit spread to a "fly" if infact you thought the crap might hit the fan.

I checked with a broker and ran by them margin requirements on such a trade:

Questions to broker:

"...if i traded 1 bullish out of the money credit spread lets say 660/650 puts my margin would be $1000 per 1 contract...

...if I then added to my positions 1 bearish debit spreads lets say 670/660 puts, in real terms my net risk profile has changed and my margin should be reduced as in reality I really cant loose the whole $1000 if the market tumbles becuase I have parked above the credit sppread a bearish debit spread...

...in this the case will my intial margins be reduced and if so how are they reduced or am i still locked into the margin of $1000 for the credit spread plus now the cost of my new debit spread outlay..."

Broker response:

"...Our margins are calculated live on the fly so as your positions change we will work to get you to the lowest allowable NASD margins. In this case you will turn a short put vertical into a long butterfly and there will be no margin on this as you can not lose more than you paid for the spread..."

Now, if I understand the fundamentals of converting to the PREGO FLY as discussed here then a reduction in margin requirements is possible for a retail customers...

The broker was Thinkorswim (TOS).

I hope that has helped ?

SteveJ
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Coach

I just surprised me that a broker that was on the ball wouldn't allow margin to be reduced with such an adjustment.

Maybe you don't need to go to a prop shop now coach :-)

Anyway, great thread and I love the idea of following actual trades...

Good work coach and everyone that has contributed so far...

SteveJ
 
Donna v

The assumption is I get "margin relief" on my credit spread corresponding to the number of new debits spreads opened?

I have emailed the same fella to clarify and will post asap.

Hope that helps ?

SteveJ
 
Yes that is the FLY in the ointment so to speak because brokers automate their margin requiremens so the platform only recognizes evenly spaced butterflies for margin purposes. Also why they only recognize condors with equal distances between the strikes although the same margin approach can be applied and simply take the margin requirement of the larger side. The problem is how they set their platform up to automatically calculate margin.

Quote from DonnaV:

the only "fly" in the ointment is that the ratio is not a 1:1 or does that matter?
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