good points. One question that noone seem to able to answer me is why write options on the spx when you could write options on the sp500 futures instead for a lot less margin. This will never work if you were to write the option on spx directly. A $1,350 credit: Sell -10 SPX JUN 2008 950 Put (.SXBRJ) $2.70 ($2,700.00) Buy 10 SPX JUN 2008 850 Put (.SPXRJ) $1.35 $1,350.00 would cost you almost $100k in requirement.
Having never traded any options on futures (just on indexes like SPX, SPY, etc.) I may be off base here so correct me if I am wrong. Does it matter that much what the margin requirement is when your risk doesn't change? I understand you want a lower margin so you can possibly take larger positions, take position in other instruments, make better use of your investment capital, etc. My point is, you are taking in a credit of $1350 and risking a loss of $98650 no matter what your margin requirement is when you put on the position.
So you Condor guys can see what you're in for, here are the monthly SPX changes for the last 15 years. Note that they are not SET values, just the Friday to Friday closes. Also note that the intramonth extremes may be much more than these closes. Moves higher than +5% are blue, -5% are red. Expiration to expiration changes (at Close) for SP-500 Start 19930521 Price: 445.84 19930618, 443.68, %Chg: -0.48 19930716, 445.75, %Chg: 0.47 19930820, 456.16, %Chg: 2.34 19930917, 458.83, %Chg: 0.59 19931015, 469.50, %Chg: 2.33 19931119, 462.60, %Chg: -1.47 19931217, 466.38, %Chg: 0.82 19940121, 474.72, %Chg: 1.79 19940218, 467.69, %Chg: -1.48 19940318, 471.06, %Chg: 0.72 19940415, 446.18, %Chg: -5.28 19940520, 454.92, %Chg: 1.96 19940617, 458.45, %Chg: 0.78 19940715, 454.16, %Chg: -0.94 19940819, 463.68, %Chg: 2.10 19940916, 471.19, %Chg: 1.62 19941021, 464.89, %Chg: -1.34 19941118, 461.47, %Chg: -0.74 19941216, 458.80, %Chg: -0.58 19950120, 464.78, %Chg: 1.30 19950217, 481.97, %Chg: 3.70 19950317, 495.52, %Chg: 2.81 19950421, 508.49, %Chg: 2.62 19950519, 519.19, %Chg: 2.10 19950616, 539.83, %Chg: 3.98 19950721, 553.62, %Chg: 2.55 19950818, 559.21, %Chg: 1.01 19950915, 583.35, %Chg: 4.32 19951020, 587.46, %Chg: 0.70 19951117, 600.07, %Chg: 2.15 19951215, 616.34, %Chg: 2.71 19960119, 611.83, %Chg: -0.73 19960216, 647.98, %Chg: 5.91 19960315, 641.43, %Chg: -1.01 19960419, 645.07, %Chg: 0.57 19960517, 668.91, %Chg: 3.70 19960621, 666.84, %Chg: -0.31 19960719, 638.73, %Chg: -4.22 19960816, 665.21, %Chg: 4.15 19960920, 687.02, %Chg: 3.28 19961018, 710.82, %Chg: 3.46 19961115, 737.62, %Chg: 3.77 19961220, 748.87, %Chg: 1.53 19970117, 776.17, %Chg: 3.65 19970221, 801.77, %Chg: 3.30 19970321, 784.10, %Chg: -2.20 19970418, 766.34, %Chg: -2.27 19970516, 829.75, %Chg: 8.27 19970620, 898.70, %Chg: 8.31 19970718, 915.30, %Chg: 1.85 19970815, 900.81, %Chg: -1.58 19970919, 950.51, %Chg: 5.52 19971017, 944.16, %Chg: -0.67 19971121, 963.09, %Chg: 2.00 19971219, 946.78, %Chg: -1.69 19980116, 961.51, %Chg: 1.56 19980220, 1,034.21, %Chg: 7.56 19980320, 1,099.16, %Chg: 6.28 19980417, 1,122.72, %Chg: 2.14 19980515, 1,108.73, %Chg: -1.25 19980619, 1,100.65, %Chg: -0.73 19980717, 1,186.75, %Chg: 7.82 19980821, 1,081.24, %Chg: -8.89 19980918, 1,020.09, %Chg: -5.66 19981016, 1,056.42, %Chg: 3.56 19981120, 1,163.55, %Chg: 10.14 19981218, 1,188.03, %Chg: 2.10 19990115, 1,243.26, %Chg: 4.65 19990219, 1,239.22, %Chg: -0.32 19990319, 1,299.29, %Chg: 4.85 19990416, 1,319.00, %Chg: 1.52 19990521, 1,330.29, %Chg: 0.86 19990618, 1,342.97, %Chg: 0.95 19990716, 1,418.78, %Chg: 5.64 19990820, 1,336.61, %Chg: -5.79 19990917, 1,335.42, %Chg: -0.09 19991015, 1,247.41, %Chg: -6.59 19991119, 1,422.00, %Chg: 14.00 19991217, 1,421.03, %Chg: -0.07 20000121, 1,441.36, %Chg: 1.43 20000218, 1,346.09, %Chg: -6.61 20000317, 1,464.47, %Chg: 8.79 20000420, 1,434.54, %Chg: -2.04 20000519, 1,406.95, %Chg: -1.92 20000616, 1,464.46, %Chg: 4.09 20000721, 1,480.19, %Chg: 1.07 20000818, 1,491.72, %Chg: 0.78 20000915, 1,465.81, %Chg: -1.74 20001020, 1,396.93, %Chg: -4.70 20001117, 1,367.72, %Chg: -2.09 20001215, 1,312.15, %Chg: -4.06 20010119, 1,342.54, %Chg: 2.32 20010216, 1,301.53, %Chg: -3.05 20010316, 1,150.50, %Chg: -11.60 20010420, 1,242.98, %Chg: 8.04 20010518, 1,291.96, %Chg: 3.94 20010615, 1,214.36, %Chg: -6.01 20010720, 1,210.85, %Chg: -0.29 20010817, 1,161.97, %Chg: -4.04 20010921, 965.80, %Chg: -16.88 20011019, 1,073.48, %Chg: 11.15 20011116, 1,138.65, %Chg: 6.07 20011221, 1,144.89, %Chg: 0.55 20020118, 1,127.58, %Chg: -1.51 20020215, 1,104.18, %Chg: -2.08 20020315, 1,166.16, %Chg: 5.61 20020419, 1,125.17, %Chg: -3.51 20020517, 1,106.59, %Chg: -1.65 20020621, 989.14, %Chg: -10.61 20020719, 847.75, %Chg: -14.29 20020816, 928.77, %Chg: 9.56 20020920, 845.39, %Chg: -8.98 20021018, 884.39, %Chg: 4.61 20021115, 909.83, %Chg: 2.88 20021220, 895.76, %Chg: -1.55 20030117, 901.78, %Chg: 0.67 20030221, 848.17, %Chg: -5.94 20030321, 895.90, %Chg: 5.63 20030417, 893.58, %Chg: -0.26 20030516, 944.30, %Chg: 5.68 20030620, 995.69, %Chg: 5.44 20030718, 993.32, %Chg: -0.24 20030815, 990.67, %Chg: -0.27 20030919, 1,036.30, %Chg: 4.61 20031017, 1,039.32, %Chg: 0.29 20031121, 1,035.28, %Chg: -0.39 20031219, 1,088.66, %Chg: 5.16 20040116, 1,139.83, %Chg: 4.70 20040220, 1,144.11, %Chg: 0.38 20040319, 1,109.78, %Chg: -3.00 20040416, 1,134.61, %Chg: 2.24 20040521, 1,093.56, %Chg: -3.62 20040618, 1,135.02, %Chg: 3.79 20040716, 1,101.39, %Chg: -2.96 20040820, 1,098.35, %Chg: -0.28 20040917, 1,128.55, %Chg: 2.75 20041015, 1,108.20, %Chg: -1.80 20041119, 1,170.34, %Chg: 5.61 20041217, 1,194.20, %Chg: 2.04 20050121, 1,167.87, %Chg: -2.20 20050218, 1,201.59, %Chg: 2.89 20050318, 1,189.65, %Chg: -0.99 20050415, 1,142.62, %Chg: -3.95 20050520, 1,189.28, %Chg: 4.08 20050617, 1,216.96, %Chg: 2.33 20050715, 1,227.92, %Chg: 0.90 20050819, 1,219.71, %Chg: -0.67 20050916, 1,237.91, %Chg: 1.49 20051021, 1,179.59, %Chg: -4.71 20051118, 1,248.27, %Chg: 5.82 20051216, 1,267.32, %Chg: 1.53 20060120, 1,261.49, %Chg: -0.46 20060217, 1,287.24, %Chg: 2.04 20060317, 1,307.25, %Chg: 1.55 20060421, 1,311.28, %Chg: 0.31 20060519, 1,267.03, %Chg: -3.37 20060616, 1,251.54, %Chg: -1.22 20060721, 1,240.29, %Chg: -0.90 20060818, 1,302.30, %Chg: 5.00 20060915, 1,319.87, %Chg: 1.35 20061020, 1,368.60, %Chg: 3.69 20061117, 1,401.20, %Chg: 2.38 20061215, 1,427.09, %Chg: 1.85 20070119, 1,430.50, %Chg: 0.24 20070216, 1,455.54, %Chg: 1.75 20070316, 1,386.95, %Chg: -4.71 20070420, 1,484.35, %Chg: 7.02 20070518, 1,522.75, %Chg: 2.59 20070615, 1,532.91, %Chg: 0.67 20070720, 1,534.10, %Chg: 0.08 20070817, 1,445.94, %Chg: -5.75 20070921, 1,525.75, %Chg: 5.52 20071019, 1,500.63, %Chg: -1.65 20071116, 1,458.74, %Chg: -2.79 20071221, 1,484.46, %Chg: 1.76 20080118, 1,325.19, %Chg: -10.73 20080215, 1,349.99, %Chg: 1.87 TOTAL MONTHS = 177 DROPS < -5% = 15 POPS > 5% = 24
The margins on these spreads in the futures are set by the clearing firm based on the SPAN calculator. I can put on 3 C / 3 P spreads as far OTM as I can get 1.20 + in each month for the next three months for only 2K - 3K maintenance margin collecting 5K+. Of course it is dynamic margin. + The closer to delta neutral you get the lower the margin. Truly unbelievable compared to SPY/X Most spreaders graduate to the FUT. Much better. Here is an example for you guys. PM me for more. I have excellent relations with my SP options broker on the floor as well. If you want to talk more about transferring to SP's vs the equities PM me. Check out the Plot. I have many more examples. Rafael Raf
See attachment for graph! Raf QUOTE]Quote from RAF618: The margins on these spreads in the futures are set by the clearing firm based on the SPAN calculator. I can put on 3 C / 3 P spreads as far OTM as I can get 1.20 + in each month for the next three months for only 2K - 3K maintenance margin collecting 5K+. Of course it is dynamic margin. + The closer to delta neutral you get the lower the margin. Truly unbelievable compared to SPY/X Most spreaders graduate to the FUT. Much better. Here is an example for you guys. PM me for more. I have excellent relations with my SP options broker on the floor as well. If you want to talk more about transferring to SP's vs the equities PM me. Check out the Plot. I have many more examples. Rafael Raf [/QUOTE]
If you did not receive the answer to your question: "What are the chances you need to roll AGAIN before expiration" At the moment you rolled, you know the prob of the short option in the money at expiration (roughly equal to the absolute value of the short put delta). Multiply that by two, and you get the probability you are looking for. I have read multiple books where they run simulations for this probability (some even charge for the calculator). I think one does not need to do so. Could anyone verify my result with a calculator? I can also post the mathematical proof for this, which is rather simple, but not trivial at first thinking. I think you are doing a good thinking here. I have some possible improvements, but further your thinking and we may talk later.
how about the position close to delta neutral to further reduce risk? Using spx june option as example. strike 950 put has a delta of 0.01 strike 850 put has a delta of 0.006 if i sell 1 contract of 950 and buy 2 contract of 850, my position should be pretty close to delta neutral. I think you call that a static delta hedging? I would still make a profit of about $1 credit from this put spread. Does sell 1 950 put + buy 2 850 put reduce my risk further than sell 1 950 put and buy 1 850 put per above?
this is an addon to the first idea. It just further reduce the need to reroll at the cost of less profit. As you are delta neutral at the get go, your stop loss (reroll) should be hit further out depends on your gamma exposure. Easy example, obviously the numbers are approx: 1 950 put $2.3 delta 0.1 1 805 put $0.7 delta 0.06 If spx drops 20 pts. You lose 20 * 0.04 = 0.8 1 950 put $2.3 delta 0.1 2 805 put $0.7 delta 0.12 If spx drops 20 pts. You are still about even, ignoring gamma