Re SPX weeklies, the wide wide spreads and the fact that only 4 or 5 strikes come out makes them a pain in the butt to use lol.
Anyone have an opinion on where the FEB 1220/1215 might fill ? I can't seem to figure it out .... midpoint is a pipe-dream.
i have been thinking in this direction for sometime (you know,iron condors and credit spreads). But whats keeping me from taking the plunge is the repair strategy if the play goes against me. If i do a bull put on a stock when the market is relatively calmer and buy back when its falling, wont IV be much higher?.So,i can have a 10 month winning streak which could be wiped out in the last two months,right?. Really appreciate if you can talk about other repair strategies.
I can't get filled on anything. Is anybody getting anything filled even remotely close to the mid? ryan
IV is not your main or significant risk when trading credit spreads which are 1 or 2 strikes apart. Since you have a spread you are short and long the option so the negative effects of IV on your short strike or significantly offset by the positive effects of IV on your long option. The real risk is your delta/gamma and that is where your main focus should be when watching these positions and looking to partially hedge. I had a great conversation with Charles Cottle over the weekend, many of you may know him from his books. He demonstrated a way to roll the position into a pregnant butterfly and turn the position from a significant risk one to a limited debit risk position. Here is the hypothetical. You sell 100 of the 1190/1200 credit spreads for X with the market at 1280. Let's assume after some time passes that the market has broken through support and is at 1255 and you expect the bloodshed to continue. Also your credit spread has gamma-ed up like the Hulk and you want to repair/adjust. You could roll into a pregnant butterfly by, for example, purchasing 25 of the 1240/1200 bear put spreads for Y. If you map it out, you will see this is a pregnant butterfly with total risk limited to the new debit of Y - X. Y-X will most likely be lower than the cost to close your credit spread or even adjust it without any partial hedges. YOu now have a limited risk position with a huge kicker- a new maximum profit level at the peak of the butterfly at 1200. For example, if the market is at 1200 at expiration/SET, your credit spread expires worthless and your 25 1240/1200 bear put spreads are worth $100,000! If the index settles at 1230, your pergo FLY is worth $25,000 - net debit. So now you have dynamically converted your credit spread with a risk of $100,000 to a prego FLY with a limited risk debit and a profit potential that is tremendous. If the market is at 1190 at expiration, the Prego Fly max risk is simply the net debit. The way I would play this is to roll the credit spread into a Prego Fly and then sell another credit spread at lower strikes to finance the net debit and create a legged into very limited risk position with huge profit potential. My mind was all on fire this weekend mapping these out and I tell you, this leads to an amazing way to hedge your credit spread and greatly reduce your risk and create potential for huge profits if the index falls into the Prego Fly profit zone. Thought I would share with you...
Thanks optioncoach for your reply. Now the question is " Is there some way to make money out of this. These prices at 1500 must have some usefulness ,otherwise why have them in an optrion chain? Suppose I sell a naked put at 1500 and collected a hefty premium. SPX is European style so I have no fear of being exercised and with good money management the rewards could be staggering. If it goes against me I can take small loss and close. If it is going in my favour I can take advantage of erosion of time value and close out at a big profit. Please comment. Thanks