I'll copy this over from SPX credit spread trader. Another week. I made $1000 gross on a Wednesday spread and $850 net. I've had two weeks to review weekly OEX credit spread trading. There was an interesting comment from a newbie talking about a 200 point out-the-money credit spread workiing for two years for somebody on the NDX. I more or less compared that to the OEX and it is roughly 10 to 1 in points. In other words, if you put a 4 strike, or 20 point Vertical Bear Call Credit Spread away from the opening on a Monday for the OEX weekly. Your probabilities of success over the past 12 weeks were 93% winning. If you could put on the spread 25 points or 5 strikes away from the Open on Monday, your winning is probably 100% for a year. The fly in the ointment is; there are no premiums so far away. Premiums are usually only 2 strikes, or so away from the action. Early in the week you might get a premium at 3 strikes away. It is not far enough away though and you must move in my NEW RULE until the index moves 1 strike toward your target, so your actual spread is 4 strikes out from the OPEN on Monday. You need an early morning or late afternoon sudden move to balloon premiums then you can get the spread on. So this week past starting on Monday I waited for the OEX to move enough to get on a spread. It did not do so, but I did by three days later, on late Wednesday succeed getting .20 cents in a spread four points out from the open on the Monday. By that time the OEX had moved 1 strike and a couple of index points closer to the 20 point, or 25 point out-the-money goal, above the market. It worked out and I made my money, with a 50 contract spread. Or $25,000 at risk and a 3% reward on margin. I failed to make the trades for Thursday, though if I had, the trade would have been a successful IRON CONDOR. I fell asleep in the hammock, waiting for my buying time on Thursday morning and it passed me by and I missed the opportunity. Option time decay kicks in around 11:45 a.m. on Thursday. You have to beat the premium changing. I've gone over the adjustments and it is just not possible really to adjust much of anything in credit spread trading is my conclusion. You can CLOSE the spread before you get hit on the short, which will not lose the $25,000 but will still lose probably half of it. Other than that, there does not seem to be any adjustments you can make to save a LOSS if it occurs. The Thursday Friday Iron Condor is a good one because TIME DECAY is so big, that you should be able to CLOSE if necessary with a .10 cents, or 15 cent loss. Still huge on a 50 contract spread. The profit though is like 1 % for the risk. I've come to the conclusion you have to gamble, ALL or NOTHING. I am trying to LEG into the spread, to get my 25 points preferably and 20 points if not, out-the-money. Or the 200 points in the NDX At 93% probability of succeeding that is not such bad odds, most of the time. On the down side, in a bear plunge if you tried to do an IRON CONDOR with a Vertical BULL PUT credit spread, your odds of winning are only 66%. Call it in round numbers a 50 - 50 bet. Not very good odds. A lot depends on the volatility of the market. So a check on Monday of the VIX and the ATR would be in order, to know if you should even bother putting on a Vertical Bull Put Credit Spread as that is were the danger is. In a narrow ATR and a low VIX number, it is entirely worthwhile and your odds go up. Otherwise with a large ATR, or high VIX around 25 or higher, stay out of it. Those are my research conclusions and will be trading this way for the forseeable future as far as credit spreads go. Now I have to find a futures broker and see how to trade the E mini. I like the sound of it so far, reading.
Not sure if you ever got this answered but with TOS you have to enter "/" before the future symbol otherwise you will get the equity. Example, if you enter ES you will get EnergySolutions Inc instead of the SP 500 e-mini. If you enter /ES you should be set. You will also need to apply for futures trading if you have not already done so in order to trade in your non-paper account. One thing to mention about their commissions it to try and talk to someone to bring them down. No way you should be paying $6 round trip. Hope this helps.
Thank you very much uptickk I am in TOS and still want to paper trade the Emini futures. Knowing how to get it /ES from your advice, I will certainly try it. For the time being it will save me the bother of changing brokers. Righto on the $5 round turn for E mini futures. Wasn't aware of the commission and was wondering. I had read someplace about .39 cents, but haven't really taken the time to reference it. My days are somewhat busy with other things. I think I can trade the futures? Will not know until I try. As a position trader.
I just was doing some research on this, and the best I can figure out is that the ST DEV of a one week option is more than half that of a one month option. I am having trouble getting the apples to apples to match up for an income spread. for spec, I think they are great.
Credit spreads for weeklies should be based on prices and not x strikes away. Good research. Look into flies, they are much more forgiving.
For anyone actively trading these... what's the size of the spread of the ES options for futures, versus the CBOE options? Are they both equally liquid? I'm looking at ES weeklies right now, and it seems like spread is 0.50-0.70 pts. Where are spreads for the cash-settled CBOE options? What's the symbol on IB?
I'll cross post this from the SPX credit spread trader discussion, where I've been carrying on a conversation with a couple of guys. I like the weeklies. You get to sleep weekends. Been doing them for a number of months now. ***************************** falconview Registered: Jun 2010 Posts: 147 08-27-10 08:40 PM Sanford and Trade Journal END OF WEEK RESULTS Total: $1745 Net income Broken down into three trades: 1) Iron Condor credit spread trade for $930 net. both sides totalled. Done in the TOS account. 2) Another learning test Short Straddle trade of 1 option each side.as a practice trade to learn the nuances. $230 net total Done on memo pad. 2) Short Strangle credit spread trade of 10 options each side. Net $610. Done on scratch paper memo pad as trades. Learning the nuances of this credit spread. Not a bad week. I didn´t record a long PUT practice trade early in the week, that earned $720 on a $850 bet. Conclusions: a) I´m probably ready to trade the Short Straddle in my account now. Also ready to trade the LONG PUTS, the two or three times a month they occur. b) The Short Strangle credit spread, I will wait another week to try it again in a practice mode on scratch paper. c) The biggest conclusion is that a correctly place and timed, LONG PUT trade buying is the best deal of all. d) On a risk to reward ratio it would seem that SHORT STRANGLE Credit Spread is better than the Vertical Credit spread. Though I have not yet got the margin requirements to accurately figure that out yet. Until I do it in the TOS brokerage account. Edit/Delete ⢠Quote ⢠Complain Stanford Registered: Jul 2010 Posts: 30 08-29-10 04:59 PM falconview, good work. Once I have learned a few more of the basics, I will ask you explain some of the other strategies in dummy language I can understand. Very interesting following the test trades I have in the TOS account. I have a combination of put and calll spreads just to follow how the numbers work. 100K in margin, collected 10K in credit at the beginning. When I l ook at the p/l numbers, does that mean if I closed all the positions I would add the profit to the credit collected? Learning some of the ins and outs of how the system works. I am just using the web based system, are there big differences between the downloaded software version? As far as autotrade, TOS will not do autotrade for Canadian residents. Does anyone know of an online brokerage that will allow Canadian autotrades? Thanks Michael Edit/Delete ⢠Quote ⢠Complain falconview Registered: Jun 2010 Posts: 147 08-30-10 01:38 PM Stanford I use the web based version because I don't have enough bandwidth and speed on my internet service. The desk top system I don't know when? In the meantime, I'm using the time to also become comfortable with learning the new strategies. So far I'm earning about $4000 to $5000 a month on a $100,000 account. I'm going for a no loss type trading if at all possible. On the TOS account section, you should see your account balance, the wins get credited at expiration to your balance. On MONITOR also I believe in a one liner. You can look up your trade record, history and so forth. I've been working this weekend on developing two papers for myself. One is titled STRATEGY EVALUATION and the other is the WEEKLY TRADING SCHEDULE. I will be trading this way for another month at least I expect. I have instructions on how the different trades work. When and in what situation to apply them. This week I will be learning the simple BULL CALL spread, or the LONG PUT, which is the alternative depending on market direction. The long PUT if it occurs will go into my TOS account this week. The BULL CALL SPREAD will be experimental on scratch paper, as I have three selections of application to choose from and need to see how it works. I need something that profits in 7 or 8 OEX pts. No matter if it is a small profit, but it must profit fast and early. Then I need to see what my debit cost is. Also going to be doing scratch paper trading some more on the SHORT STRADDLE and the SHORT STRANGLE. Need to build up my confidence level in these two, as I'm still not absolutely confident that my decision and application tree is right yet? Made me a rule this week, that I will not trade an IRON CONDOR on anything over VIX 25. Last week I traded VIX 24.5 or so. It was close to scaring me. I decided to do the BEAR CALL SPREAD in lieu of the straight CALLS buying. Various technical reasons for that. Will see how the experiments work out over the next few weeks. After that, I'm going to get SERIOUS and eliminate a lot of these credit spread strategies as too expensive in margin money and risk. The risk to reward ratio is wacko! When I start serious I want to start trading with between $5000 and $20,000 and you can't do that with these credit spread strategies. They don't earn enough on the small scale for the risk. What the final decision will be I don't know? But ultimately the starting account must be somewhere between $5000 and $20,000 start up. So whatever strategies fit that is the solution. These credit spreads to be meaningful productive profit wise, require $80,000 to a $100,000. Which is way too much RISK for a BEGINNER amateur like me in spread trading. *********************************** As far as the E Mini's I looked at them another weekend and boy they sure jump all over the place. That might have been the time frame I was looking at? Didn't linger. /ES is the prefix. TOS has the options on it though. I tried a regular weekly BEAR trend with a plain buy of 10 options on the OEX weeklies and earned 71% in three days. Around $850 invested and + $752 or something like that on scratch paper. So I'm very encouraged about buying options, instead of selling spreads as it fits my real cash budget better.
Long calendar spreads (long the long dated option, short the short dated option) don't require margin. Of course they only make money if the underlying doesn't move too much.
Long Calendar Spread Thanks for the tip. Will look at it over the next few weeks. Got this weekly OEX option trading schedule heating up right now. Follow along as an amateur beginner in spread trading, tries to learn the ropes at: HARD KNOCKS OPTION OEX WEEKLY CASH INDEX TRADING. Up to last week, had got the monthly gross profit up to around $5000. Mixed returns, some in my TOS account with spreads I´m now comfortable with and new ones I´m still not sure of confidence wise, doing them on memo scratch paper.
Re-inventing the wheel! I´ve been going over my trading. I can make a steady $5000 a month using credit spreads of different kinds on the weeklies. This does not seem enough, for the risk and margin involved. You need $80,000 to $100,000 in your account. A smaller retail trader should be able to operate on $5000 to $20,000 and grow through compounding. Still achieving respectful returns at the end of a year to rival the Credit Spread traders with their $100,000 accounts. So I´m reviewing things a bit. There is a phenomena of trading daily options, in which about every 4 to 6 weeks, you can do one trade that will earn you around 50 to 70%. This is buying Long PUTS. The idea would be to scale up the size of the bet. I´m trying to look at this as an end of the year type RESULTS BASED strategy earner. If I continue trading Credit Spreads and assuming not a single loss, which could wipe out the whole account, or a significant portion thereof. The most you can look for at the end of the year is around 80% to 110 % gain on capital. Presuming you are PATIENT and can wait for the trades and do no other type of trading. The whole idea is the END OF YEAR RESULTS IN PROFIT. The LONG PUT buying would require only 6 trades a year to earn 250% a year. Presuming you could bite your nails and not trade anything else out of boredom. Which said compulsive trading could conceivably lose you money and probably would. If one moves to different TIME FRAMES on the charts, you get more frequent BEAR MOVES as in corrections on the weeklies, the trouble with which is; they are sort of only around 5 to 7 points presuming you could catch them? I´m not sure how fast you would have to move to catch that in a weekly trade, as TIME DECAY is atrocious. If you used 45 day away options then you might need a much bigger move and make this idea impractical. Will have to do some experimentation here. I don`t seem to have any indicator that would act as a leading indicator sufficient enough to catch a swift BEAR correction in the weeklies. Anybody got one? I´m looking at 10 day - hourly charts and the 10 day - 15 minute charts. The problem with the weeklies is the TIME DECAY, which being good for some credit spreads like the Vertical and the Iron Condor is atrocious on the long buying of PUT options in weeklies. I suppose I could move up to 1 month - daily charts and will take another look at that? That however requires a bigger move in the OEX to make equivalent profit in percentages. Anybody done any work on this LONG PUT buying on weeklies and monthly?