"In fact I went long ES futures at around 10:10 with the SPX at 1203.50" -- Nicely done! By the way, last night was an example of ES having greater swings than SPX.... not good.... I need to figure out how to adjust for that without being shaken out of ES overnight positions.
Phil, You consistently use short strike + 15 points as the adjustment point. Is the 15 points from experience? Have you looked at 20 points?
The adjustment distance is more a matter of experience and risk management. I have a 15 point window where I consider adjustments but I do not automatically make them, as was seen in my short call spread before July expiration. I use that point as my alert to analyze and make a determination whether the market move warrants an adjustment, while also factoring in time to expiration. More time to expiration and a strong move towards me is more likely to cause me to make an adjustment than a move towards me with a few days left and no strong indicators supporting the move. I want to adjust as little as possible and in fact I have not made one adjustment all summer long. My first step is usually to add some SPY partial hedges to absrob some losses if the market does make that large move. However, I am using short strikes deep deep OTM and an adjustment has not been needed to date. My advice is to set up a fence in front of your shorts where if triggered, you re analyze the position to make a determination if an adjustment/hedge is needed, if time decay has a profit for you then just get out. I chose the 15 point mark as an early warning indicator. If you are more risk adverse and cuatious then a 20-point one can work. It is a personal choice, not an exact absolute. Phil
Grabbed some more credit on the call side since I wanted in at the best strikes I was comfortable with before time decay really kicked in. I do not see any major rallies in the next 2 weeks so the little credit I grabbed was just a cherry on my put spread premiums: SPX @ ~1206 Sold 110 SEP SPX 1250/1260 Call Spreads @ $0.25 (.20/.35) Credit = $2,750. Now for a more accurate look at the risk/reward let's look at the combined current positions: - 150 SEP SPX 1140/1155 Put Spread @ $0.55 - 150 SEP SPX 1270/1285 Put Spread @ $0.30 Total Credit = $12,750 Total Risk = $225,000 Return = 5.67% - 110 SEP SPX 1165/1175 Put Spread @ $0.95 - 110 SEP SPX 1250/1260 Put Spread @ $0.25 Total Credit = $13,200 Total Risk = $110,000 Return = 12% At this point I am inclinded to let them go to another week before I think about taking any profits off the table. 1200 support is holding today and my short strikes seem deep enough OTM to maintain my positions and let time decay earn me my duckets. Phil
Well, what do you know, Coach and I have one of the same IC postions right now and I even ended up with a higher credit (I put my positions on a little earier). I must be doing something right! I'm glad to see that 1200 is holding well today, I was getting a little nervous over the weekend about the reaction to Katrina and the spike in oil. Thanks for a great forum here Coach, I am learning a ton! I'd send you a cut of the profits but I seem to have lost my checkbook ;-) ryan
well in my defense I did only add the 1250/1260 today lol (and right before the large upward surge in the market @#$%!) I think 5% is a good return for an IC, 12%+ is fantastic! Especially with strikes this far out with 3 weeks to expiration. Looking forward to OCT once these positions are closed. Phil
I closed a 1265/1275 spread early when the market tanked for several days for a profit (5.5% gain) and rolled it into the current 1250/1260. If all goes well and they expire worthless I should get another 6.5% (although, like you, I might close early and get into an October position). There is still a lot of time before expiration so I'm not counting my chickens before they hatch. ryan
Coach, I've been following along for sometime now and just wanted to say "Thanks" for your honesty and help in education concerning credit spreads. I've traded options for awhile and this thread has really been an eye opener for me. I had attempted put and call spreads before, but on stocks with semi success. After following along and paper trading for the last couple of months with success, I decided to jump in and give this style of trading the SPX a shot. Trade entered today is as follows: 20 Sept SPX 1150/1160 puts for .50 credit What do you think? If the market go up tomorrow I may put on a call spread. Pyhootie
It looks like a good trade to me. You received a good amount of credit with the short strike being 52 points OTM (at the close). You are looking at a 5% return with 18 days remaining if all goes well. Make sure that you have a risk managment plan in place should the market move quickly against you. I know Coach's preference is to hedge/adjust/exit the position when the SPX is 15 points from the short strike. Make sure you are prepared. ryan