Vertical Spreads for Aggressive Growth

Quote from RichardRimes:

YOU do have your cynic hat on at the moment...uhmmm a drink or too as well? Reality is that beginners are afraid of trading and FOTM means less trading (thinking). Eventually the market forces the trader to learn and actually trade. Hopefully they have made enough trading FOTM that they still have recourses to trade with :p
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Agree with everything you say as usual! When the market does force the trader to learn, some are better at dealing with it than others.
 
Rally,

Your posts are very informative and thoughtful. Thanks for sharing your insights.

I'm trying (very small size) some CTM spreads. I want to get your thoughts if your willing.....

Do you treat puts and calls differently? (more below). And do you exit if the market is between your strikes, at your long strike or strictly on technicals/direction opinion? (PS - this whole post assumes credit spreads)

My thought on early exits is that I hate negative theta, so I'm planning on exiting my call spreads between my strikes. Otherwise, I'm paying theta down to my long strike. I'll then reposition the spread (one martingale).

On calls vs. puts.... vol declines during rallys, so corrective action like covering short calls should be cheaper than forecast. The converse happens during market drops - so for now I'm avoiding put credit spreads. Also the direction of the skew favors call credit spreads (and put debit spreads).

Do you ever bail early? I know the TOS guys generally don't except just prior to expiration.

Also, I love the risk/rewards CTM. When I looked at prob. of expiring against the r/r, I decided I had to try some of these.

Best & thanks,
 
Quote from Eric99:

Rally,

Your posts are very informative and thoughtful. Thanks for sharing your insights.

I'm trying (very small size) some CTM spreads. I want to get your thoughts if your willing.....

Do you treat puts and calls differently? (more below). And do you exit if the market is between your strikes, at your long strike or strictly on technicals/direction opinion? (PS - this whole post assumes credit spreads)

My thought on early exits is that I hate negative theta, so I'm planning on exiting my call spreads between my strikes. Otherwise, I'm paying theta down to my long strike. I'll then reposition the spread (one martingale).

On calls vs. puts.... vol declines during rallys, so corrective action like covering short calls should be cheaper than forecast. The converse happens during market drops - so for now I'm avoiding put credit spreads. Also the direction of the skew favors call credit spreads (and put debit spreads).

Do you ever bail early? I know the TOS guys generally don't except just prior to expiration.

Also, I love the risk/rewards CTM. When I looked at prob. of expiring against the r/r, I decided I had to try some of these.

Best & thanks,
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So many questions and i probably have twice as many answers. I could probably write a whole chapter on credit spreads and then i can go ahead and lose money using my own methods. :)

My point is that even if i did have a uniform way to exit these, it probably wouldnt work for you anyway. You gotta find out what works for you and base your decision on that. I dont even know what your entry signal is, how can i possibly tell you when to exit. Personally, i havent found any benefit in exiting early vs waiting it out. On a grand scheme of things when i look back i have probably been wrong as many times as i've been right doing either. I put much more effort in entering these than when i have to exit them. I generally dont sell put spreads unless vols have risen. There is very little incentive to sell them due to the skew. risk/reward is horrible.

If you havent already i suggest you read the detailed posts cache wrote on CTM spreads as recently as about a month ago, also momoneythansens has also wrote quite a few detailed posts on the subject. Should be of great help to you.
 
It's about time to go with an ATM spread to catch a ride on the SPX train. GDP numbers coming out tomorrow before the open, with the recent market strength it's hard not to think that the market will shrug off any bad news and really jump on good news.
 
Wow, red all over my quotes screen. It's been so long that I thought I needed a new monitor. Well, this drop was driven by hardware (check out SOX) and many people are blaming it on GS making comments about HP. To me it seems odd that it exactly coicided with a fed bank president's speach on fed policy. Strangely I can't find anything about his comments anywhere. If anyone has an update, please fill me in.
 
Quote from Cache Landing:

How bout the charts on XLE. Looking great for a bull run. Strong bounce off the support at 50, and then a big break through resistance today. Closed above the 20, 50, and 200SMA on decent volume. Maybe a slight retrace, but next stop likely 58.
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Looks like I might've missed the resistance by 0.50 as it peaked at 57.50 and might not get higher in the near future. we'll see. I'd expect a correction back to 55 now.
 
Nice call on oil, Cache. Speaking of which, why not turn your attentions back to OIH?

It's broken convincingly out of it's seven month downward channel and IMHO, 130 could offer a great entry; high probability with an attractive R:R profile.
 
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