Yeah...the fills worked fairly well over the last couple days because I leg into my spreads. Admittedly, I do take a price impact risk doing that but I'm reasonably comfortable with it. Sometimes it works very well....and other times I pay for my folly when trying to forecast market direction. With regard to returns: By virtue of who I trade with I get Market Maker sytle "haircut" instead of Reg-T margin so asssuming I get keep all of the premium sold and I have to make no adjustments my "return on haircut" is a bit higher, something like 34%.....but who's counting. Have a good weekend.
Showoff LOL. Good luck with the trade. You may be bale to close out the trade in a few weeks for a good return and still open another JULY position after that and earn even more when combined. Phil
This has got to be one of the best threads currently running on ET... very educational and very professional... thank you optioncoach...
Coach, On the July 1110 / 1125 put spread: What would be the price that SPX would have to drop to before you initiated your hedges / or stop losses ? You mentioned earlier in this thread about using SPY bull call spread as some sort of hedge against a big drop. Do you mind elaborating more on this? Again, thanks for the great thread! -esu2
Hi Coach, Great thread best I've seen here so far. I won't take too much of your time one quick question. I have been calculating Sig 2 levels on several markets to writing Bear/Bull CvSS in excel and have programmed a few spreadsheets to calculate volitilities and greeks. My question is What software do you use to calculate the option chains, would you please recommend some i.e Essex option pro, Option Vue5 any that would suit this type of trading style Many thanks Lloyd Essex, UK p.s. Have you guys checked out www.t2w.co.uk its a british forum similar to this has a lot of good free information.
Well I do not want to give away all my secrets...but hey we are all here to learn. For this July position, I would not raise any yellow caution flags until SPX moved below 1140, which is a spport level of sorts. Even a 30 point drop in one week would only take the index to 1168 or so and with just a few weeks to expiration, I would still be over 40 points OTM. So if 1140 is broken my eyebrows would raise. Of course one of my recent positions opened has higher strike puts around 1140 so 1160 would also raise my eyebrows with respect to that position. SPY options are 1/10 of the SPX and therefore are cheaper for OTM strikes. If the market seemed to lose its foooting and had some drops to the 1160s, assuming I had the 1125 short strike, I would look into some bear put spreads using 114/113 or 115/114 strikes. Ths would cost very little given time decay and if the market continued to move lower and I had to decide to roll out or close, I can make some money on my SPY spreads to reduce the hit on my SPX spreads. If the premiums are cheap enough I may just go long a ton of SPY puts. Basically I am looking for some income on the move to reduce any loss or negate any loss in rolling out of my SPX positions if need be. The best scenario is the index settles below my long SPY strikes and above my SPX strikes for increased porift potential. Remember this is a partial hedge not a perfect hedge. If I can make $800 on the SPY position and lose $1,500 on the SPX put spreads on a rare occasion the market makes such a large swing, I have a small net loss which can be recovered easily in the next month of trading. THis is my personal system approach and I have been happy with it. I have had a few long SPY puts expire worthless since after adding my hede the market cooled, but I still walked away with a net credit and the SPY hedge let me sleep better. I have specific personal rules and plans for when to do this and I think you can study the SPY strkes and premiums and see what works best for you. Phil
I do not think complex software is a mandatory on such a straightforward strategy. I use OptionsXpress which shows IV and delta calculations, has live java charting and detailed option chains. I also use charting sites such as bigcharts.com to do technical analysis. Also OX has live Dow Jones newswire for daily news and breaking events. CNCB in the morning for major headlines or reports, CBSMarketwatch for additional news sources. All of it free, all of it more than useful enough to do option trading. In my fund we also use some proprietary modeling to estimate index movements for probabilities of success and IV modeling, but that is because we have the resources to do so. However, not necessary if you use the other free tools I mentioned. Regards, Phil
Thank you very much for starting and maintaining this thread. It is very useful and interesting. I work as a market maker for a large firm on the floor of the CBOE. I am supervised to see that you are not delta-neutral. I would imagine that the best way to take advantage of the favorable IV skew would be to sell small delta puts (or put spreads) and sell the underlying to hedge delta risk. This would enable you to take a short vol. position without trying to predict where the market is going and trade more size with less margin. You could then hedge any delta's as a result of your negative gamma with the underlying or other options. The only negative aspect of this strategy that I can foresee is the commission associated with hedging your portfolio's deltas. I guess if you are planing to leg into a iron condor by selling a call spread with your short put spread position you could deem it a waste to hedge your deltas? I am obviously missing something here, and any feedback would be much appreciated. Thanks again for sharing your trading expertise. Steve