Hi All, Was lurking in the background. Still a newbie to index options. My first post here. Thanks Optioncoach and all others for all the info you presented here. I have done a few credit spreads with SPX on TOS live account. Found it difficult to obtain reasonable credit. Like to move onto uneven fly spread with SPY instead. Would appreciate some input into this technique from those who are more practiced with live trades. I am more concern about the practical issues of the technique during live trading. Like to confirm a few points/observations regarding this type of trade. This is a live trade on a small account. Please comment. Re the attached file: Payoff chart of a âtypicalâ skewed fly trade on the put side. Does it appear correct? -the initial aim /expectation is for the trade to expire worthless (OR reach a key/set profit target before SET). -If SPY index goes against my trade( say SPY index goes down and we are in an uneven Put trade ) we must attempt to exit/close trade when SPY index closes between Point 132.99 and Point 131.29 if possible; from Payoff chart profit is higher closer to the middle around 132.02 on chart. Are these assumptions valid during âliveâ trading when the index hits that area? -how difficult is it to close out the trade during live trading when Point 132.99 is breached? In other words will I get out of this trade with a profit easily when it matters. -One other way of hedging is to buy 2 SPY puts at 133 when the market turns against the trade? Comments please! Thank you all in advance for your input....... ZZ
Covered Calls Risk Management: After trying all options strategies and burning more than my fingers, i have decided to stick to Covered call strategy. I bought 1000 shares of GM at $30 and wrote 10, 32.5 calls against it for a premium of $1000 ($1/$30 x 100 = 3.3%). 1). As long as the stock is below the strike price, i dont get called away and i keep doing this every month. I will get back all my money in GM stock in 30 months (assuming i get $1 premium every month) 2). If i get called away in the very first month, i make a profit (2.5 + 1).no problems there. 3). After writing 2 months for $2 and the stock is down to $20, i get called away on the third month at 22.5 stike, i will be at a lose. (on stock i lost $10, On options, i made $3 premium plus $2.5 (22.5 - 20)). Total lose$3.5 My questions is how do i handle the 3rd scenario. I hope i explained it correctly. can anyone provide risk management rules for covered call writing.thanks
answering my own question, buy GM stock again as long as its below $30(the price i bought) and keep writing $1 calls?.
Mark: Is the bid/ask range just wide on the trader's computer screen for the SPX as opposed to the "real bid/ask" in the pit. Example: Today, I wanted to close my Sept. 1550/1560 bear call spread (I'll be out of town and can't watch it). On the ToS screen the bid/ask was $0.15 to $0.80. I tried a few offers with no success. I called ToS and the guy I spoke with said that range ($0.15 to $0.80) was "ridiculous" and would call down to the SPX pit to get the "real" bid/ask. After he called he told me the "pit" bid/ask was $0.40 to $0.60. I place a trade to buy the spread back at $0.50 and was filled within 5 minutes. Since you're an experienced MM, what's your take on my experience today. Thanks.
They do it as of 2 weeks ago on 100+ lot orders. http://www.elitetrader.com/vb/showthread.php?s=&postid=1563804#post1563804
What does this really mean to index spread traders @ IB? Does this access to SPX mm's via IB's tradedesk make trading the SPX any better or worse than trading NDX or RUT in terms of being able to judge accurate bid/ask spreads for putting on trades with the best R/R ratios? Even with NDX & RUT, I've found that mid prices need to be 'probed' with several small orders at various levels around the mid to find the sweet spot for executions. And by fishing you can often get better than quoted mid-price executions.
While it does not address your question directly, you might find the "Three Step" webinar interesting. http://www.cboe.com/LearnCenter/webcast/archive.aspx