Vertical Spreads for Aggressive Growth

Quote from RichardRimes:

Thats what I though...thx :p
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I should've been more clear. If you look at bonds, there was a sharp jump SEP19-25. During this period, the SPX was at strong 1325 resistance and many of us were calling a market top along with a good portion of the rest of the market. On SEP 26 we broke through the resistance and you'll notice a sharp drop in bonds back to previous levels.

Now we're at a more critical level. Bonds are at strong resistance and SPX is at support. Now your job is to tell me who will win. If SPX rallies again from here I would expect another bond pullback. If bonds don't pull back on an index rally then I would say that the top is very near as theoretically that would indicate the "very dumb money" stage of this rally.
 
Quote from Cache Landing:

I should've been more clear. If you look at bonds, there was a sharp jump SEP19-25. During this period, the SPX was at strong 1325 resistance and many of us were calling a market top along with a good portion of the rest of the market. On SEP 26 we broke through the resistance and you'll notice a sharp drop in bonds back to previous levels.

Now we're at a more critical level. Bonds are at strong resistance and SPX is at support. Now your job is to tell me who will win. If SPX rallies again from here I would expect another bond pullback. If bonds don't pull back on an index rally then I would say that the top is very near as theoretically that would indicate the "very dumb money" stage of this rally.
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Hmm...Selloff in bonds and SPX. Not what I expected. Oil is wreaking havoc on treasuries right now.
 
Quote from momoneythansens:

Relax, SPX going nowhere till next year LOL :D
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Yeah, according to your predictions we are right in the middle of the range right now huh?

"SPX 1365 +- 25points":D
 
Cache, Rally and others,

Taking your commentary on the advantages of CTM CR spreads, I've set up some backtest spreadsheets on Martingaling with the strategy. Some like to trade these as expiration bets only, but I was coming from the angle of avoiding negative theta near and beyond the long strike, so I would close them early. I know that this can create whipsaws - exiting at the worst time - so I rolled the spreads further out.

You can increase size (Martingale) or not, but the results are good. I tried this with FOTM and it doesn't work because the ratio of loss to new credit is simply too low. With CTM, it seems to work pretty well.

I backtested a CTM spread (calls only) beginning on Sep 1 and taking it through October expiration. I was pretty happy with the results - even if showing a loss because even under these extreme conditions, the small loss was manageable. Under normal conditions, you could do well with decent probability.
 
Quote from Eric99:

Cache, Rally and others,

Taking your commentary on the advantages of CTM CR spreads, I've set up some backtest spreadsheets on Martingaling with the strategy. Some like to trade these as expiration bets only, but I was coming from the angle of avoiding negative theta near and beyond the long strike, so I would close them early. I know that this can create whipsaws - exiting at the worst time - so I rolled the spreads further out.

You can increase size (Martingale) or not, but the results are good. I tried this with FOTM and it doesn't work because the ratio of loss to new credit is simply too low. With CTM, it seems to work pretty well.

I backtested a CTM spread (calls only) beginning on Sep 1 and taking it through October expiration. I was pretty happy with the results - even if showing a loss because even under these extreme conditions, the small loss was manageable. Under normal conditions, you could do well with decent probability.
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I'm not saying that I do advocate the use of Martingale strategies, but if I did it would definitely be for CTM spreads rather than FOTM spreads.

When it comes down to it, CTM spreads are simply more manageable than their FOTM counterparts on an adverse move.

If I were to offer a few words of advice on your proposed strat, it would be to limit the extent to which you are willing to roll/increase size. Some have suggested increasing size twice on a bullish move against you, and only once on a bearish move.

I have a slightly different approach that works well for CTM CR spreads. You admitted that your strat is vulnerable to whipsaw and bad timing. I would suggest that you consider rolling without a change in risk parameters until you are able to more adequately time your adjustment. IOW, buy more time first, then roll up/down when the timing is right. Just something to chew on.
 
Quote from Cache Landing:

If SPX rallies again from here I would expect another bond pullback. If bonds don't pull back on an index rally then I would say that the top is very near as theoretically that would indicate the "very dumb money" stage of this rally.
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Today is what I was talking about. A bit of confusion was thrown in by the big jump in oil causing a selloff in treasuries friday, but the same holds true on a continuation tomorrow. If SPX rallies back toward highs and there isn't an accompanying selloff in bonds and precious metals, then the top is likely getting quite close.

So far today, bonds and gold/silver are hovering at the unchanged mark.
 
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