SPX Historical Spread Plays

optionsmaven · Feb 18, 2011

Hi Stanford,

Just read up the thread on page 11. We had a 1280/1285 bull put spread in the Feb contracts, for a 2.30 credit.

Josh

Stanford · Feb 18, 2011

Thanks

jstancliff · Feb 19, 2011

Quote from tman:

I forgot that there aren't 5 point strikes in the weeklys. 25 point strikes won't provide anywhere near a 12.5 credit.

I wouldn't want to trade this strategy on spy because of the risk of early exercise when it goes ex-div and it's itm as you previously mentioned.

Actually there are 5 point strikes in the weeklys. But the credit not quite as nice as the monthlys.

Mister X

JJacksET4 · Mar 1, 2011

Quote from optionsmaven:

Hi Folks,

....We entered a new spread at the 1335/1340 strikes in the March contracts near the 2:30 PM low, buying the 1335 and selling the 1340 puts for a credit of 2.20 and a 2.80 margin requirement.

Good trading to all

Not to sound mean or anything, but these spreads aren't doing very good at all. Of course, you know you can't win all the time so I'm sure not a big shock or anything. It just seems like there are always people trying to sell spreads who act like it is some super advantage strategy, but then when something goes wrong they are in disbelief, and panic sets in!

Good luck for the next 2 1/2 weeks or so - maybe you can still make it.

Edited to add - I don't mean to imply that OptionsMaven would panic, but someone who "jumped" in this month after seeing previous profits just might. Kind of like Spins warning on the first page of this thread - you can have or see someone else's system that works 80-90 percent of the time - then when you throw your hat into the ring, the very first time it fails! Of course, if you make profits 60-65% of the time and have been doing this for a while, you build up a bit of a cushion for the months that don't work.

JJacksET4

HowardCohodas · Mar 1, 2011

Quote from jstancliff:

Actually there are 5 point strikes in the weeklys. But the credit not quite as nice as the monthlys.

Mister X

Credit received, like most other things with respect to options have as strong dependence on days to expiration. I have found that the last week of monthlies is little different than a weekly with respect to vertical spreads.

HowardCohodas · Mar 1, 2011

Quote from JJacksET4:

Not to sound mean or anything, but these spreads aren't doing very good at all. Of course, you know you can't win all the time so I'm sure not a big shock or anything. It just seems like there are always people trying to sell spreads who act like it is some super advantage strategy, but then when something goes wrong they are in disbelief, and panic sets in!

Good luck for the next 2 1/2 weeks or so - maybe you can still make it.

Edited to add - I don't mean to imply that OptionsMaven would panic, but someone who "jumped" in this month after seeing previous profits just might. Kind of like Spins warning on the first page of this thread - you can have or see someone else's system that works 80-90 percent of the time - then when you throw your hat into the ring, the very first time it fails! Of course, if you make profits 60-65% of the time and have been doing this for a while, you build up a bit of a cushion for the months that don't work.

JJacksET4

There are ways of mitigating the risk of volatility jumps like we had at the end of Feb when trading credit spreads. That jump in volatility was painful to me. Yet, Feb was my best month ever. I've been trading credit spreads for real money since Aug 2010.

JJacksET4 · Mar 1, 2011

Quote from HowardCohodas:

There are ways of mitigating the risk of volatility jumps like we had at the end of Feb when trading credit spreads. That jump in volatility was painful to me. Yet, Feb was my best month ever. I've been trading credit spreads for real money since Aug 2010.

Yes, but at Feb expiration, the markets were quite high, which was very good for bull put spreads as OptionsMaven is putting on. Right now, the bull put spreads are deeply ITM on the wrong side and I don't know that his general plan includes doing anything to mitigate the risks - just put the trade on and play the percentages.

Really, it's not volatility jumps that hurt bull put spreads that were placed near the money - its large price decreases.

JJacksET4

optionsmaven · Mar 2, 2011

Hi JJacks and Howard,

Thanks for your postings. First, in replying to JJacks, please note that I have never stated, or even implied, that this strategy is some 'magic bullet' scheme that you can just bet and forget. To the contrary, my emphasis has been that it works well OVER TIME and it is obviously exposed to loss in any specific cycle. Of course, if one were to enter the strategy in a cycle that fell, rather than rose, the temptation would be to abandon it. However, a key feature of the technique is its money management aspect over a continuing series of months, a modified martingale. I outlined that on Page 2 of this thread, posted back in November, 2010. For those who are interested in how it has worked over the last decade + 2 months, I'll be happy to forward the strategy rules and the detailed trading results. Just e-mail me at info@wastingassets.net.

Thus far in the March cycle, the outlook appears bleak, but that may well change, as the SPX is down to the level of its rising 50 day exponential moving averge. It bounced off that M/A last month and, who is to say that it won't do so again? I'll be discussing that possibility in my blog later today at blog.wastingassets.net.

Good trading to all.

HowardCohodas · Mar 2, 2011

Quote from JJacksET4:

Yes, but at Feb expiration, the markets were quite high, which was very good for bull put spreads as OptionsMaven is putting on. Right now, the bull put spreads are deeply ITM on the wrong side and I don't know that his general plan includes doing anything to mitigate the risks - just put the trade on and play the percentages.

Really, it's not volatility jumps that hurt bull put spreads that were placed near the money - its large price decreases.

JJacksET4

Part of what mitigated the pain were the profitable CALL spreads added in Iron Condor formation but also helped neutralize delta.

lowvoltrader · Mar 7, 2011

The credit is about half the difference in strikes for almost ATM verticals which makes sense. What would be interesting would be to see how the results stack up if the popular "buy in November, sell in May" timing rule were overlaid on the strategy. In this variation, the strategy would be initiated in November with December expiration verticals and closed with May expiration verticals, avoiding the months with histoirically larger declines. If a quick back test shows the performance significantly above 60% then the variation might be better.....