Who Sells Vertical Credit Options Spreads on Weekly Options?

[TskTsk]

Quote from syswizard:
2) if the price does not move, the option position still shows a profit

If your delta dwarfs your theta risk then that is not at all a realistic scenario.

Look at how spreads would do today. You'd be looking at massive deltarelated losses. I was short the Jan31 ATM vol and took a 0.5pts hit, and stickiness worked in my favor. If I was short the spread I would be in much, much more trouble. Again, why trade spreads for theta when there are much better, lower risk structures for it? In fact if anything, I would be buying spreads (paying debit) because there would be an awesome RR to hedge with. Look at notional risk and then give me the yearly return for a spread.

 

[tradingjournals]

Quote from TskTsk:

In fact if anything, I would be buying spreads (paying debit) because there would be an awesome RR to hedge with.

You are right particularly given the recent low volty levels.

 

[RichardRimes]

Quote from tradingjournals:

I am not I understand your spreads as discussed above. How did the current spread do today?

Not speaking for KTM but his trade is still a good looking trade today. He has +1 1845 - 2 1825 for a net credit of 6.15...so he is in no pain before 1799 on close Friday. If he is slightly nervous he could buy the 1805 for 5.50 (last price) and he then has the B-fly for a credit...no risk trade with good potential gain. free money.

Remember these types of trades are always dynamic...he could have very easily bought a put or two this morning before market tanked as added insurance/gain, OTOH with the vix a rather mild sub 14 odds of another tank tomorrow not that great. a trader trades.

 

[RichardRimes]

Quote from tradingjournals:

Today may have been a good day to test weekly spread trades.

Those who sell premium might have had visits to their trading accounts.

Something like:

+0.10 +0.10 +0.10 +0.10 +0.10 -2.00 ..........

your making some pretty broad (and bad) assumptions. No one (at least who knows anything about selling premium) is gonna sell weekly spreads for tiny...

 

[barney-]

Quote from RichardRimes:

your making some pretty broad (and bad) assumptions. No one (at least who knows anything about selling premium) is gonna sell weekly spreads for tiny...

Thanks Richard, I agree.

I went in on two Weekly Spreads yesterday.

Got 5:1 R/R on a PCLN spreads for this Friday expiry and a GOOG one for 5:1 (now) as i've lopped on a call spread to complete my IC.

I closed out my call side to PCLN about an hour ago for a 0.05 Mid.

took one side of the risk off the table.

That GOOG $1,165 Call for this Friday is interesting... solid volume but the IV Mid is higher than the rest... watching closely.

 

[emk662]

Hi, are you playing a bearish strategy? I do not quite understand the logic of your adjustment. Also, as I checked the quotes, at 10th, the $1850 put closing price is $17.25, and $1825 put is $4.55. So, 17.25-4.55=$12.7. How can you make a 1:2 buy put ratio for $2 credit? Thanks.

Quote from ktm:

Mine are vertical, but I guess technically ratio spreads. I'm trading ES puts buying at 1:2 with the buy around the money, maybe a hair above and the sells about 20-25 pts down with 10 days or so til expiry. I can put these on for a small credit or flat. I'll take off the 2nd put in the $1 range and move the long put down 5 when I can do so for 4...(80% of max value).

Expiry yesterday worked out quite well as I had a 1845/1825 for about a $2 credit, then managed to move the long put down 3 times to pull out 12 pts. Obviously this is optimal and not every week works out this well.

For the 17th I had a 1850/1825 for a 2.15 credit. The 1850 has already been moved to 1845 for another $4, so I'm still sitting on that.


Obviously, I have stops in place should we have a big sudden move down overnight and this strategy really only works in this type of low vix environment.

 

[sle]

Quote from RichardRimes:

your making some pretty broad (and bad) assumptions. No one (at least who knows anything about selling premium) is gonna sell weekly spreads for tiny...

Actually, if you are able to get good execution, weekly dime options (not spreads) are most likely the best sell. As a retailer, by doing this you are providing liquidity to banks and large funds that have pretty eggregious crash risk limits nowdays (their lunch is now your lunch, important to know whose lunch you are eating). Yes, the seller is short systematic risk, but as long as you size it conservatively, a 3-sd move will set you back but not ruin you.

 

[ktm]

Quote from emk662:

Hi, are you playing a bearish strategy? I do not quite understand the logic of your adjustment. Also, as I checked the quotes, at 10th, the $1850 put closing price is $17.25, and $1825 put is $4.55. So, 17.25-4.55=$12.7. How can you make a 1:2 buy put ratio for $2 credit? Thanks.

I put on the weekly for the 17th around the first of the year. Closing prices on the 1850P/1825P for 12/31 were about 21.90 and 12.10.

Moving the 1850P down to 1845P was not really an "adjustment" as much as taking cash out of the position.

 

[ktm]

Quote from tradingjournals:

I am not I understand your spreads as discussed above. How did the current spread do today?

Richard Rimes is correct.

I hung in on Monday and made no adjustments. I rolled the 1845P in $4 increments all the way down to the 1830P, so I'm still holding the 1830/1825P. Had we seen continued weakness either overnight Monday or Tuesday morning I would likely have adjusted, but it just turned on a dime and went right back up.

I took off the 2nd put a bit earlier than usual at $3 on the way back up, so I've netted around 15 points on this trade so far - another stellar week that is NOT typical at all for this kind of trade. But that's the point of doing these kinds of spreads. You may lose a little/make a little for a long time, then you hit a few weeks where you get some (relatively) big winners. When we are jolting down, you can have some down weeks as well, but if we're in an environment where we can see rising vix numbers and multi-day triple digit Dow drops - then you need to bail on this and work another strategy.

At this point, I could pick up a few more points if we drop below 1830 by the close tomorrow.