SPX Credit Spread Trader

Discussion in 'Journals' started by El OchoCinco, May 17, 2005.

  1. To add a little variety I will start a Journal of the credit spread trades I make month to month on the SPX, XEO, OEX and possibly RUT.

    RIght now my current trade open is (which can be opened today):

    61 JUN 1075/1090 Bull Put Spread @ $0.75

    Credit = $4,575
    Risk = $91,500

    Return = 5.00%
    Time to Exp. = 30 days

    I basically look for nickles and dimes month to month and add more to the positoin or add different strikes based on market moves.

    Will keep it updated for those interested in selling spreads against indexes.

  2. MTE


    Looking forward to it, Phil.:)
  3. just21


    How do you hedge if the index moves towards the strike you have sold?
  4. Without giving too many secrets away :) here is what I do.

    1. First I pre-determine that I will not let the index get more than 10 - 15 points close to my short strike without making an adjustment.

    2. If the market starts moving towards a short strike, and I usually have quite a cushion in front of it with OTM strikes, I will add long put spreads using SPY and OEF or options on futures to make some money on the adverse move which gives me an even greater cushion to stay in the position or get out only with a small loss.

    3. What usually happens is that by the time the index gets close to my short strikes, a significant amount of time has passed and time decay has worked its magic to counter some of the movement higher in the options.

    These are some general comments, I want to keep soem stuff behind the big black curtain lol. But if an adjustment or hedge is warranted coming up I will certianly post it.

    Also, my positions will increase once my MAY positions expire worthless and my credit margin goes back up.


  5. lar


    Great Phil.

    I am VERY interested in following this thread, win or lose. I think there can be a huge statisitical advantage and I am thrilled to be able to watch first hand. Please keep it coming.

    Thanks man and gtty,

  6. just21


    1090 is two standard deviations away from yesterdays close to the 17th of June, options expiration day. 95.4% chance of expiring out of the money.
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  7. lar


    Hi Phil,

    How do you select your opening strikes?
  8. I select strikes using two tools:

    1. Technical Analysis
    2. Probabilities

    1. TA- In the case of bull put spreads, I look for support points and lows within the past 52 weeks and start with strikes outside of the range.

    2. I use simple models for probability calculations and look for strikes with around 90% or better chance of expiring worthless.

    Oh no I have revealed too much lol.

  9. lar


    Thanks Phil,

    I have ALWAYS wanted to explore S&P OOM credit spreads from someone who knew what they are doing. Would using delta suffice as a simple probability model?
  10. Delta is a great shortcut. If you want to translate what I am saying to delta then only choose short strikes with a delta of about .10 or less (.11, .12 or .13 are still pretty good.)

    #10     May 17, 2005