SPX Credit Spread Trader

nlslax · Feb 5, 2006

Quote from ryank:
For vertical spreads on indexes here are the guidelines Tom gave us:

*Enter position minimum 23 days from expiration
*Trade front month contracts
*Go +/- 2% from the index :eek:
*Take in 1/3 width of strike for your credit
*Cover at 10% width of strikes

Someone in the class asked about possible adjustments and Tom stated that this is a "set it and forget it" trade. He said some people like to go much farther out on the short strikes but he didn't like the very small amount of credit taken in compared to this method. I think the 2% distance from the index would mean you have to have a stong directional bias when you put on the trade.

We also went over unbalanced butterfiles and condors which look very interesting to me so I will be papertrading those to get a feel for them. The double diagnonals and stradle/strangle swaps look very interesting as well. I believe these are covered more in the Learn-N-Trade and Advanced Options seminars.

I learned alot at this seminar and will definately be signing up for the Learn-N-Trade and Advanced Options as soon as time allows. I am still reviewing my notes and trying to understand all of the information that was presented. My guess is that this seminar offered more information than you could get at some of those $3000+ seminars that are out there. Even the seminars TOS charges for are only $199 and you get lunch included.

Just wanted to share my two cents worth and see what others have to say about Tom's guidelines.

I was at the Learn 'n Trade in Orlando last week. Tom went over similar points re verticals and unbalanced IC's. He didnt care for the concept of selling "NICKELS AND DIMES MANY TIMES." Says to sell a spread with a 65% prob of expiring (Delta ~.25-.30) and taking in ~33% of the width of the spread. I did hear him say that he suggested selling 2.5-3% OTM.

My understanding is that he feels as long as your risk is defined and the prob of expiring OTM is in your favor, ride the spread as long as you can. He also said taking in $350 on a $1k spread will allow you to stay in the trade longer, as opposed to only taking in $.60 on a $1k spread and getting scared out sooner.

Not sure which method is better, although "better" probobly isn't the best word for it.

ryan [/B]
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Hart9000 · Feb 6, 2006

I was also at this class and found it very interesting. Tom was applying these guidelines to slower, tighter indexes like IWM. You would not use these guidelines on the SPX.

Quote from ryank:

For vertical spreads on indexes here are the guidelines Tom gave us:

*Enter position minimum 23 days from expiration
*Trade front month contracts
*Go +/- 2% from the index :eek:
*Take in 1/3 width of strike for your credit
*Cover at 10% width of strikes

ryan [/B]
More...

skanan · Feb 6, 2006

I trade one or two contracts almost every day. I don't pay $2.95 per contract. You can email support there and ask for comissions reduction. Don't tell them I told you.

Quote from Cache Landing:

IMHO ToS has the best customer service. I just wish they were a little more competitive with their commiss. Could they be as good as they are if they were only charging 0.75/contract?
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WD40 · Feb 6, 2006

can someone explain what do the following mean?

*Go +/- 2% from the index
*Take in 1/3 width of strike for your credit
*Cover at 10% width of strikes

nlslax · Feb 6, 2006

Quote from Hart9000:

I was also at this class and found it very interesting. Tom was applying these guidelines to slower, tighter indexes like IWM. You would not use these guidelines on the SPX.
More...

I've traded IC's on RUT before, much higher Beta than SPX. 3% is manageable w/SPX & SPY. A little too tight for RUT & IWM. I plan to place trades this week to test out Tom's strategy.

Cache Landing · Feb 6, 2006

Quote from skanan:

I trade one or two contracts almost every day. I don't pay $2.95 per contract. You can email support there and ask for comissions reduction. Don't tell them I told you.
More...

I've never thought of doing this before. Do I have to give up any of their nice little perks for this lower commission. I knew that they let you adopt a different company's commissions but you give up certain things.

Also, I don't really worry about the $2.95/contract except for on my journal thread account. I don't suppose that they would let me get a reduction on the $1.50/contract on bigger orders? I know, I know.... Americans always want something for nothing.

Cache Landing · Feb 6, 2006

Quote from ryank:

Ok, third time typing this, computer keeps crashing and eating my message before it gets posted .

I attended the free TOS Beyond the Basics seminar a few weeks ago. These guys really know there stuff! Tom Sosonoff was the instructor for the meeting along with a former OEX floor trader named Joe. I figured the seminar would be run by some TOS lackey but I was wrong. Google Tom Sosonoff sometime and you will see what I mean.

For vertical spreads on indexes here are the guidelines Tom gave us:

*Enter position minimum 23 days from expiration
*Trade front month contracts
*Go +/- 2% from the index :eek:
*Take in 1/3 width of strike for your credit
*Cover at 10% width of strikes

Someone in the class asked about possible adjustments and Tom stated that this is a "set it and forget it" trade. He said some people like to go much farther out on the short strikes but he didn't like the very small amount of credit taken in compared to this method. I think the 2% distance from the index would mean you have to have a stong directional bias when you put on the trade.

ryan
More...

To a certain extent I agree with ToS on their OTM spread opinions. This is evident from my journal thread. But I'm with optioncoach as far as SPX is concerned. SPX is well suited for deep OTM spreads. I've never been to ToS seminars or anything, but it sounds like they are solely counting on statistical probabilities. This only works with large accounts where you can spread out your money between 50 different positions. That is the only way you could possibly promote a set it and forget it strategy. (Hence the <2.5% allocation to each trade statement) As a slightly more experienced option trader, I think that actively managing 50+ positions at once is very difficult. I really try to stay under 15. I also think that passively managing a position that is only 2% OTM on an issue like SPX is insane. And if you are playing a tighter, slower issue then you wouldn't really get a great credit either. Just my opinion.

nlslax · Feb 6, 2006

Cache - Can I have a link to your journal?

WD40 · Feb 6, 2006

Quote from nlslax:

Cache - Can I have a link to your journal?
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http://www.elitetrader.com/vb/showthread.php?threadid=63020

WD40 · Feb 6, 2006

TOS has a graph of OEX +/- 6%
http://www.tosadvisors.com/mop.html

<img src="http://www.tosadvisors.com/images/oex_big.gif">