credit spreads

Discussion in 'Options' started by traderjimbo, Feb 13, 2003.

  1. anyone out there making any steady money from credit spreads ???
  2. credit spreads are the way to go.......
    the kids at CRT made it popular.... now Its a great way to play the %

    ratios are great and its nice how easily you can flip them into flys if you have to :)
  3. cartm


    What's CRT? :confused:
  4. maglia rosa

    maglia rosa Guest

    what exactly do you mean by 'credit spread'?
    Do you mean a calendar spread or a vertical spread?
    Some people seem not to realize that with verticals for example, credit spread is a complete misnomer. Selling a call spread is synthetically buying a put spread, so there the expression credit spread becomes bogus, since you can either collect or pay out to initiate a position where the profit function is the exact same (ignoring the possibility of legging orders etc.)
    As for selling calendar spreads and collecting (credit), you should realize that you are essentially selling forward vol and as such don't have a riskless position on.

  5. They are an absolute cash machine in the right market environment with the right kind of Implied Volatility profile.

    There have been extended periods during which I employed no other trading style than credit spreads. During the years 1988, 1989 1992 and 1993 this was all I did.

    The period will come again, perhaps soon, where this is once again the optimum style. But IMO we're not there just yet.

    Dr. Zhivodka
  6. Its a vertical spread with a credit to your account from selling the more expensive option on both puts and calls
    you can do it with calendar spread but once the back month expires you'll be left with uncoverd position which you'll have to roll over
  7. Trajan


    Shhhhsh, it's a secret.
  8. CRT

    Chicago Research and Trading. One of the first groups down on the CBOE in the 1970's. Now owned by Bank of America.
  9. Maverick74


    No, when the front month expires. When the back month expires you are out of the position. The back month can't expire before the front month. So when the front month expires, you will be naked a call or put in the back month which then needs to be covered.
  10. Credit Spreads.....yes, CRT did well with them as one part of an overall delta neutral trading strategy years ago. CRT was one of the big players on the CBOE back when my brother was there...very smart group.

    Since then, the "edge" (if any) has been narrowed down to the point of almost non-existence. Valuation programs have proliferated over the years, and taking only part of the equation ...they look great.

    Let me explain: If you simply calculate the conversion or reverse conversion on the "3 way" (buy stock, sell call, buy put or vice versa), you will come up with a number that will virtually always be within a few pennies of "fair value." Taking one side may look theoretically (or at least numerically) valid, or providing an edge...but when you totally enclose the "box" (all 4 sides of a money spread (0r vertical spread)), then you will still see a $5 box trading around $5....

    To be honest, however, there are many strategies worse than this one....this one is ok, and does look appealing.....

    Be sure you really understand the "guess the volatility" play in options before trying to trade them off of the trading floor.

    (Just trying to help)....

    #10     Feb 14, 2003