Stock Credit Spread Trades

[fakie99]

as a sidenote - when someone says "leg into" an IC does that just mean execute the high or low spread, then come in later to initate the other end? under what circumstances would you want to do that - maybe make sure the trade is going your way, then put on the spread on the opposite end?

thx,

 

[cszulc]

Quote from fakie99:

as a sidenote - when someone says "leg into" an IC does that just mean execute the high or low spread, then come in later to initate the other end? under what circumstances would you want to do that - maybe make sure the trade is going your way, then put on the spread on the opposite end?

thx,

Exactly correct. If I'm in front of the computer and I see the market improving or declining, I'll leg into the spread that will benefit best from that moment. If market is going up, I'll buy the call spread part that will be moving upward.

 

[fakie99]

Quote from cszulc:

Exactly correct. If I'm in front of the computer and I see the market improving or declining, I'll leg into the spread that will benefit best from that moment. If market is going up, I'll buy the call spread part that will be moving upward.

in the case you mention, you'd buy the call spread becuase the premiums would be going up in that instance i assume?

thanks for the explanation!

 

[cszulc]

Yep, right.

 

[MTE]

Quote from cszulc:

I think you're thinking of ITM CALL credit spreads.

For example, I sell the 1000/1020 (buying 1000 put/selling 1020) put spread on the SPX for $15, and take in the $15 credit but can lose $1985 if SPX goes below 1020.

No, I'm not thinking about ITM call spreads. I was correcting your typo(?).

You said:

Quote from cszulc:

Mainly because I do not like picking a direction.

Sometimes I'll do deep ITM credit put spreads on the SPX or RUT, but with these volatile markets they must be really ITM to be safe, making the reward not as worth the risk.

Selling a deep ITM spread (put or call) is an extremely directional bet, cause you need for the underlying to move above (for puts) / below (for calls) your short strike to keep the premium.

However, what you mean is really an OTM spread.

 

[MTE]

Quote from cszulc:

Exactly correct. If I'm in front of the computer and I see the market improving or declining, I'll leg into the spread that will benefit best from that moment. If market is going up, I'll buy the call spread part that will be moving upward.

If you are selling an iron condor and the market is moving up then you should sell the put spread first as it will become less valuable as the market moves up, and wait for the market to move up to sell the call spread, which will be more valuable then.

Unless, of course, you mean breaking up the IC into 4 individual trades, i.e. buying the long call first and then selling the short call,...

 

[cszulc]

Quote from MTE:

No, I'm not thinking about ITM call spreads. I was correcting your typo(?).

You said:


Selling a deep ITM spread (put or call) is an extremely directional bet, cause you need for the underlying to move above (for puts) / below (for calls) your short strike to keep the premium.

However, what you mean is really an OTM spread.

You're right. Thank you.

I was confusing ITM/OTM for puts, thinking they're calls.

Sorry!

 

[cszulc]

Out of 1 of the MSFT credit spreads for $0.84, $22 gain over two days. Not bad considering it only tied up $250 of capital.

Might be putting on iron condor soon, have to check quotes.

 

[ChanTrader]

Are you scaling down these trades for illustrative purposes on this journal or really just trading 1 contract at a time?

Aren't the commissions killing your profits?

 

[cszulc]

Commissions are with IB, at $0.70 per contract.

Depends on the spread, but around 2-5 contracts per trade.