Credit spread strategies

Discussion in 'Options' started by clarodina, Dec 12, 2016.

  1. No. A credit spread is a limited reward AND limited risk trade.

    Best
     
    #11     Dec 21, 2016
  2. ironchef

    ironchef

    Yes, I stand corrected.
     
    #12     Dec 21, 2016
  3. tommcginnis

    tommcginnis

    How to "manage" trades in which the market is assailing your position?
    1) Remember that delta has multiple rolls. Know each.
    2) If your troubled position has a short delta of, let's say |0.40|, and your "Uh-oh!" Rule sez that you need to address any position over |0.35|, then it's time to roll.
    3) If you wish to remain revenue-neutral on the position, roll such that the |sum| of your new short deltas is ≈ |0.40|
    4) Just to put it all in one example,
    if you rolled "away" for the current expiration, and took a same-sized spread with a short delta of 0.20, you would need to do that ~ twice, to sum to 0.40.
    OR you could
    -- roll "away" to a 0.20 spread, the
    -- roll out&away to a 0.15 spread {now incurring a new margin burden},
    and then, anticipating a reversion-to-mean turn away from these new positions,
    -- roll out&away *the*other*way*, to a lesser-risk -0.10 position, getting a second use from that newly-incurred margin burden from the prior step.

    Your net change in delta was to take a |0.40| position, and turn it into a
    nearer-term 0.20
    longer-term 0.15, and
    longer-term -0.10
    ---------------------------
    new position |0.45| total,
    max delta |0.35| per side
    max delta |0.20| and |0.15| per expiry.

    Lastly, and the single greatest wisdom, dictum, piece of advice one could offer:


    Capital Preservation be the thing.
     
    #13     Dec 25, 2016
  4. ironchef

    ironchef

    Thank you. I think I understand what you are saying. Very helpful.
     
    #14     Dec 25, 2016
  5. Never heard that one before! The market really can test your comfort zone I guess.
     
    #15     Jan 17, 2017