Piccon, I'm not Coach obviously and I'm sure he'll answer this for you in due course. In the mean time, here is a second opinion worth about as much as the paper it's printed on: Ask yourself this: if you didn't have the credit spread on, would still you go long the DEC 1640 straddle that you are proposing? If the answer is yes, and you think the NDX is going to move up or down fast and you think volatility is likely to increase then go ahead and buy the straddle as a completely different strategy based on your market sentiment. Manage the credit spread separately i.e. take it off if it no longer fits your sentiment. The credit spread wants the underlying to sit still (become less volatile) or move down. The straddle wants the underlying to move fast (become more volatile) in any direction. These are two different strategies. Which one do you want? If the answer is no, then are you buying the straddle to somehow defend the credit spread or more specifically the credit $ received? This is where it get's complicated. If you are buying the straddle to protect or defend the credit spread then why are you buying the put? The put is bearish and your credit spread is already bearish. That's a lot of -ve deltas. If you're really bearish then you've nothing to worry about, the spread will be safe and there's no need for the call. Things are further complicated by the fact the straddle is in a different month to the spread. This could indicate that your sentiment is different in the medium term than it is in the short term but based on what you wrote, this is not the reason you want to buy the straddle in a different month. I don't want to put words in the mouth of Coach but his adjustment approach seems to be based around the credit received from the spread i.e. being prepared to use some of the credit received from the spread to finance some insurance to further "hedge" the position (let's not forget the spread is already a hedged position) e.g. if you received $10K for the spread, you might be willing to spend $2K on a hedge which under the right circumstances would make enough money for you to help close the spread you had on or possibly roll it up. If the hedge is not needed then you've spent $2K on insurance for which a claim was not needed. Furthermore, Coach and co. seem to prefer to buy hedges on separate but related instruments - perhaps for price or clarity. Reading the last paragraph is perhaps the reason I do not personally take the same approach. Indeed, if you ran simulations you might find that you come out just as well or better by not buying the hedge insurance and simply adjusting or closing without it - but that's another story! Looking at the strategy from the point of view of P/L of the credit received is certainly a valid approach but you may want to take a different approach: one that is based on your market sentiment RIGHT NOW. Forget your credit. What position would you like to have RIGHT NOW? Do you have it? If not, how do you metamorphize (sp?) your current position into one you do want? How much does it cost? Would you pay that much for the new position if you didn't have any position to start with? These are not new concepts and are certainly not original thought by me. More here: http://www.riskdoctor.com What this means is in your context is that you may end up paying more for an adjusted position than the initial credit you received but you could also end up making much more than you would have. This might be a hard strategy for some people to adopt but why keep a position on that no longer fits your sentiment. After all of that philosophizing, I'm not sure I've added any value to this thread or to your question. The two approaches are not neccessarily mutually exclusive. As has been discussed many times on this thread, there are millions of ways of adjusting credit spreads and it really depends on what you think is going to happen.Consider this one for your current spread if you think the index is going to finish somewhere very near your short strike THIS MONTH (is that what you think?): rather than buying the DEC 1640, you could buy the NOV 1640 and bring the cost down by selling one of your long NOV 1665 calls i.e. you are doing a 1640/1665 debit spread. Two weeks out is still a bit long for me to come to that sort of conclusion though. Depending on the number of lots you can end up turning your credit spread into a butterfly (unbalanced) where you actually make your most money near the short strike (more than the initial credit from the credit spread). I haven't checked the prices but due to the width of your spread you might not actually get much credit for the 1665 calls so this may or may not be a viable strategy. Discussions on the width of spreads have also been undertaken on this thread so I won't reiterate here. Just remember you can do this incrementally as the index moves up, you can buy more and more 1640/1665 debit spreads to turn your credit spread into more of a butterfly. Indeed if you go all the way (and sell all of your 1665s) you will end up with a bull call spread which might be what you want if the index blows right through the top. You can of course reverse the process if the index moves down again. You have to look very carefully at the costs of doing this as it might all be prohibitively expensive and not really justified. Once again, there is more than one way to skin a cat and this is just one. Note to self: I really have to learn the concept of brevity. Momoney.
SPX trades are executed by people in the pit and not electronically. I spoke with one of the ToS trading desk guys and he told me that what happens is that there are a lot of orders out there and, people being people, orders can go to the bottom of the pile and can be forgotten. My second trade with ToS, which I posted earlier, was a situation where I called to 'goose' the trade and was told by the ToS guy, who called me back after he talked to somone in the pit, that my order would be filled at my requested credit. He said that they were very busy and it might take a few minutes. Ten to fifteen minutes later, nothing. I called ToS again and they called back down. We found out that they had filled a different order. The guys in the pits only looked at the credit and not the actual details of the spread when they said they would fill it. So they filled someone else with a different spread at $0.60 and not me at $0.60. However, after the second call, they quickly filled me even though my credit was now above the midpoint (because the SPX had moved). I don't really like calling either, but this is how the game is played. I suspect that this is kind of like being at a busy bakery where there are only two or three people behind the counter and scores waiting to get served. And maybe in this situation 'you don't take a number' so you have to jostle a bit and speak up when it's your turn. I don't really know, but my experience is that ToS gives me an option to 'work' the trade that OX did not. BTW: I have nothing against OX. I still have an account with them and I have every intention of keeping it.
I think we can all agree that, anectodal evidence aside, when it comes to pit traded options (grrr...) there's not much to choose from between brokers and things can change on a daily basis. As Phil says, the broker passes the order on to the pit. However, customer service of the broker IS a differentiating factor. On the contrary, ToS seem to encourage EVERYONE to call them regardless of how much they trade. I very rarely find a company that I will publicly extol the virtues of but ToS is one. I'm guilty of wanting to keep them all to myself. Impressive is an understatement when you get responses from not one but two co-founders of the company to general support e-mails - on a Sunday no less! I am genuinely taken by the ethos of the company. They are running a masterclass in how to grow their customer base exponentially by word of mouth marketing through the feel good factor and making each customer feel special and in a privileged position by "knowing" the top execs of the company. If I see anymore name dropping I will have to kill myself The cynic in me believes that all good things come to an end and that this personal attention by co-founders of an exponentially growing company HAS to eventually take it's toll and cease to be. Furthermore, as people get tired, will the trade desk be so responsive to the same questions over and over and over and over again? Right now I'm not complaining. They are faultless. Then I look at my commission statement and I wonder how other companies can get away with delivering less. Momoney.
Not to be stupid, but what do you say when you call in to TOS? I place my limit order and then I refresh my screen and watch the mid dance up and down some waiting to get filled. Do you say, hey I know I placed a limit of X online but please make sure it gets filled right away before the market moves some more? ryan
lol. Pretty much yeah. If you are communicating with the trade desk via Live Support rather than phone, they seem to be able to pick up your order without you having to tell them about it. Momoney.
I've never tried Live Support for my orders. Hmmm, what do I say? First, I don't call unless my order is at least a little below the midpoint (ToS calls it the 'mark'). I think if you call when you're order is above the midpoint, then they might only call down to get an idea of where you might get filled, if they'll call at all. They might try to get you to reduce the credit size. Maybe Mo knows more on this. I wouldn't suggest saying 'please make sure my order gets filled right away before the market moves some more'. After all, they are simply routing the order and are not making a market in it. You want them to follow up on your order and get the pit traders to take notice. But, they won't be able to guarantee anything. Maybe the fact that an ex-trader (the ToS guy) is asking helps; a kind of professional courtesy, but I don't know. I guess I say: 1) I have a credit spread order that I placed. They ask for my account number. 2). ToS guy looks it over and maybe comments on where the trade is relative to the midpoint. If I'm at or below, I'll ask him to call down if they don't volunteer. 3) Usually they ask for my phone number and will actually call me back to tell me what they've found out. Then we go from there. Although I'm not sure (because I haven't tested it), I think you have to be reasonable. These desk guys are apparantly all ex-traders/brokers, etc. They do want to help you get the trade filled and sometimes that probably involves them 'talking you down' (so to speak) to a credit that they believe has a chance at getting filled. But it's really that simple. They almost always tell me to call back on future trades, if I want help. In my three calls, they've always been helpful. Like Mo I don't usually extol the virtues of companies, but I really believe that ToS has provided me with the fills that I wanted (so Gator, I'm not saying they were necessarily better than OX as there was no test done, but I'm happier with the ToS fills). I could rarely say this with OX. If you want to switch, they'll probably match your commission schedule with OX. I can give you some more details on switching if you want to PM me.
Basically I call this one guy who I developed a rapport with at ToS and tell him what spread I am looking at and he quotes me the bid/ask (the real one on the floor which is much much tighter than what the screen shows because they call and get the current quotes from the floor. After he tells me I tell him what price I would like and if it is doable he calls it down for me. As I am watching my ToS screen the order pops up and I just wait until it fills. It could take 1 minute or 10 minutes but I have a better chance with the call then just placing the limit order and letting it sit there at times. I will not tell you who my guy is (need my edge! lol) but some of the guys know me now over there. Just call the desk and tell em Coach Phil recommeded you and you will get pretty attentive service! Phil
Hi Momoney, Just to clarify. Do you buy a hedge insurance if price moves against you? I was thinking a hedge might smoothen the equity curve eventhough you might be better off in the long run if you didn't.
LoosenUp, Before I respond, let me first say that this is my personal approach and is not one probably advocated by most people on this thread. Whatever makes you money I say! RE: Buying hedge insurance - no I don't. I might play the price move as a separate strategy if I'm feeling lucky or just bored but I don't do it specifically to hedge or fund a credit spread position adjustment. This is an important distinction for me as it impacts on what instrument I might use and how large a position I might take for the speculative play. The main reasons why I don't buy hedge insurance, in no order of importance, are the following: 1) KISS. Buying hedge insurance makes a simple "fire and forget" style strategy a degree more complicated. Based on the principles outlined on this million page thread, it requires either a lot of skill (which I'm sure Phil and others have) or alternatively finger in the air technique by which I mean you need to choose WHEN to place the hedge HOW MUCH to hedge WHEN to get out of the hedge and indeed IF you should get out. Not to mention the choice of instrument. This is part of the risk management mantra. Again, Phil and others are intimate with their weapon of choice and can make this work. However for lesser mortals, with the underlying typically bouncing up and down I would suggest you would get the timing wrong as many times as you get it right hence my comment about possibly being better off in the long run without it all together - even from an equity curve point of view (just because you don't buy the insurance doesn't mean your spread is going to lose). If you can get the timing right then why wait till the index is near your shorts - why not play that game all by itself and make money from that? Of course, i'm simplifying things a bit by that statement. 2) If I do waay OTM credit spreads of the style on this thread, I put them on ASSUMING that they are going to lose lol and forget about it. Call it negative expectancy or whatever you want. I only use very small lot sizes for this strategy as the risk/reward profile obviously sucks. When you're in this kind of position (small lot/% trading capital), you don't get your knickers in a twist when the index makes an adverse move against you! It's easy to underestimate how much that impacts on how you react emotionally and pyschologically. Indeed, last month I was short at 545 on XEO. The index went through it at least 5 times in the last two weeks but I did nothing. I had already written it off cursing the God of probabilities to whom I am devout. In the end they expired barely ITM in the last half hour of trading but I still came out ahead on that spread thanks to the large credit I received. If I had played the hedge insurance game and rolled down I'm pretty sure I would have not come out any better because my personal market timing generally sucks. It would be interesting to know how many people adjusted down and/or bought insurance that with hindsight, didn't need to based on where the index finished. You could argue this is the nature of insurance which is fair enough and I take that point. So why not buy the insurance in the first place (when it is probably cheaper) and forget about it? This becomes a different strategy - rather than credit spreads you are creating a slightly different kind of spread - one with less credit and more protection. Do you see where I'm going? You can't expect to have a fully hedged (initial) position and still make money. Phil has gone over this before. I personally view the credit spread as already a partially hedged position. You have to assume some risk to make money. I'm sure there were more reasons but I can't think of them right now lol. At the end of the day, as I say, when I use this strategy I have very small positions. If I were in the situation of other people on this thread that appear to be using much larger positions either in real terms or as a percentage of trading capital I may very well be a lot more nervous about the whole thing when the index is hurtling towards me. That's when it's crunch time: is one REALLY prepared to lose all of that money? Because it will happen one day. Despite ones best hedging undertakings. IF I was in that situation I may very well look to protect my maximum loss in a similar fashion to the "hedge insurance" technique...but crucially, I'm not. Therein lies the rub and limits my real usefulness on the discussion of this topic. Despite not personally adopting it, I wish however, for Phil and co. to continue with the hedge insurance strategy as it serves as good an indicator of trend reversal as any other I've seen Take all of the above with a pinch of salt as I am not speaking from a position of authority or great experience but rather from what seems like common sense to me. I welcome any constructive criticism. Prosperous trading to you. Momoney. Note to self: Really must keep responses down to 4 sentences.