SPX Credit Spread Trader

Coach,

I am interested to see how your diagonal is doing so far.

When the market is moving away from your front month short, I think the diagonal will lose money. That is something we need to consider, and it seems that we don't have a lot of discussion in this matter.

 

Not true when you limit yourself to doing spreads for a cash credit. But, even small debit spreads don't lose - unless the market move is huge.

The risk in these spreads is a market move that sends your shorts ITM.

Mark

 

I'm not ashamed to say I'm a newbie. Here it was I thought you'd come up with a new strategy.

 

Mark,

If you have a credit diagonal, you are right.

In general, there are two risks involved in a diagonal.

1. Market moving away from your strike.
Your max loss is the debit.

2. Market moving deep in the money.
Your max loss is the strike difference.

A diagonal is a strategy that has a narrower profit range when compared to credit spread.


If you open a diagonal with credit, it means you have to set the strike very close to the current price (compared to a debit diagonal), and you have a higher chance of facing risk #2.

 

Your diagonal looks very good to me. where did you open this position? What were the spx and vix?

I am interested to find out where is the best time for diagonal trades.

 

I opened this on 7/17 with SPX at about 1234 (look at a chart, I really called the short term bottom didn't I )). The VIX was at 18 (after thinking about this more, this level is probably a bit high for putting on a diagonal with current conditions, live and learn). I was looking for the market to move down from there but it has risen more or less since then. We may go lower but not sure we will get all the way to 1200 to maximize my profit on this one.

 

any diagonal, no matter how far away the short strike can be placed as a credit if you go far enough away on the long side.

2 1-sigma diagonals for a credit is very similar to 1 1-sigma short strangle but the trade is long vega.

 

would the TLT work?

 

THIS is the real "conundrum" of the Fed. I believe further increases will actually increase inflation...basically fuel to the fire as businesses will be forced to raise wages and prices to offset increased rates/oil. Its a very delicate balancing act. If the economy is slowing down you just don't want to SLAM on the breaks by another rate increase. Of course this debate will keep the VIX up this week