Posted by DigiNomad on 17th of May 2023 at 03:49 pm
Nice! I was looking at something similar but a bit wider (but
that's just a sizing thing).
Did you notice the crazy call skew in that move today? Holy
crap. I don't think I've ever experienced anything quite like that!
My losses ballooned to illogical levels in a heartbeat before
getting cut in more than half over the last hour or so and
returning to more logical levels (given contracting Vol, etc).
SQUEEZE. It's a good thing I'm very careful about sizing. The
market can and will test you with illogical moves at times.
Imagine getting a margin call and trying to tell the guy "but the
VIX was declining and the underlying only moved up 1.3%. How
did the option price explode higher like that? Your Platform model
said it would only be half of that!" Lol
DigiNomad, I initially purchased a 50-point wide BCS and
immediately received a notice of an impending margin call for
$1,000. The margin required is $100 per $SPX point for a short call
or put position. So I halved the spread. My maximum loss on it is
the margin, I think. I expect the premium to drop within a month,
and I could either sell the BCS or let it expire worthless. I could
have gone to 30DTE, but I am playing it lightly till I know how it
behaves.
The 3ATR on the weekly chart is 4367 on /ES, so this BCS should
bring me income.
Posted by DigiNomad on 17th of May 2023 at 04:15 pm
Junkie, Here's your trade profile (as it stands now, not when
you bought it).
You could lose up to $2100, but I would cut losses and roll
out and up at about a $700 loss.
By all means, keep your spread width as small as is
comfortable. I purposefully choose a width that allows me to have
at least 6 spreads in play from the beginning. That way I can scale
in and out (as Matt sort of described in his post). Your max
confidence point is typically at the beginning of the trade. Once
it ages, the probability of something going against your thesis
grows.
XSP is also an option at 1/10th the size of SPX with
the same tax benefits (but less liquidity)
DigiNomad, thanks for the trade profile. I used a TD Ameritrade
account. I could view the same in the IB.
I received $330 credit, so about $700 is a double of the credit
received. If closed for a loss, I would open another BCS with delta
0.15 at the time to defend it for the amount of a loss on the same
expiry date. Correct? Thank you for your mentorship!
Posted by DigiNomad on 17th of May 2023 at 04:28 pm
If you are playing with sizes that come anywhere near your
margins, I would definitely advise the standard defense for short
call spreads - roll out a month, and up to a strike that gives you
the same amount of premium that you just bought back when taking
the loss. You might not be able to go all the way up to
another 16 delta strike, but you want to keep the premium level the
same as the position you just conceded, or you are potentially
locking in a loss. *TastyTrade would advise that you should
never roll out and up unless you're taking in more credit...I'm
sometimes fine with a wash on the credit, if it gives me a safer
level to be short.
The method I described of rolling up in the same month and
doubling down the amount of contracts is only safe (relatively
speaking) if you are trading VERY small relative to your net
liquidation (premium sold under 4% of net liq, or so).
DigiNomad, I can free up some buying power once I get a feel of
the method. I am holding two losing put positions at the moment --
based on Jim Rickards Income strategy (which does not seem to work
at all) -- which should be resolved one way or the other.
Posted by DigiNomad on 17th of May 2023 at 04:41 pm
30 DTE is fine. But with the VIX this low, I find I have
to move out farther to sell levels I'm comfortable with (after
listening to Matt & Steve every night, of course
)
It's almost hard to lose with credit spreads unless you take
too much risk or get greedy. You are literally the
House...and "The House always wins." I'm being facetious,
but only a little. The odds are grossly in the favor of the person
selling premium vs buying it. If you stick to a plan and have
solid risk management in place as part of that plan, you will be
successful. Don't swing for the fences!
30DTE should drop the premium faster, I reckon. I am going to
play this lightly, keeping in mind the 4300 target on SPX, which
everyone knows about. Selling the premium is the way to go!
I will post my developments on this blog. I like to let the
position expire worthless although premium drops fast in the last 3
weeks before expiry. Thank you again!
Posted by DigiNomad on 17th of May 2023 at 04:55 pm
Watch some TastyTrade content on YouTube or their website. They
have study after study showing which DTE, delta, etc are best.
They approach it very objectively. For example, based
on many studies conducted, they make the case that you should NOT
hold until expiration. In fact, they say the sweet spot is to take
profits at 50% and manage at 21 DTE. I don't always follow
their recommendations on this point (greed), but I never hold until
expiration....maybe 1% of the time over the last 15 years or so.
For what it's worth, don't make the mistake of getting sucked
into that world and forgetting about BPT - I think this group and
the newsletters are critical to my success as a credit spread
trader!
I know of the argument against holding to expiration for 0DTE.
The last week may add almost nothing to the credit owing but will
hog up the margin. It is a very good argument against doing
that.
Junkie, DigiNomad. You guys are sharing some very good option
trades but I must warn the newby's that unless they have been
trading options for some time and have good experience doing so
that these are high risk option trades. However I have posted the
trade on my TOS paper trading account and will follow the trade as
you guys post. Good Luck Junkie.
mundy, selling premium is inherently risky. The bottom line is
either 50% of the credit received (about $160 per spread) in 2
months is either worth the trouble of holding a position or
not.
Yes sizing and planning is what a big factor for handling
emotions esp on stocks or positions you want to hold longer - if my
size is too big, I just can't mentally stop myself from exiting on
a nice move too early. One strategy I try to do is buy a
large position so that I can satisfy my drug selling addiction,
then I try to keep a small core; for example if I bought 5000
shares, maybe I end up keeping 500 or 1000. If I bought a normal
sized position it's too easy to just scale out and lose that
position
again trading is what I call a mind fuck - so many emotions and
disciplines and other things to deal with
most of us don't have pointy ears like Spock from
Star Trek we were have mastered our emotions
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DigiNomad, I bought $SPX Jul
Posted by junkie on 17th of May 2023 at 02:15 pm
DigiNomad, I bought $SPX Jul 21 4400/4425 Bear CS on this pop (sold 4400 strike, delta 0.15).
Nice! I was looking at
Posted by DigiNomad on 17th of May 2023 at 03:49 pm
Nice! I was looking at something similar but a bit wider (but that's just a sizing thing).
Did you notice the crazy call skew in that move today? Holy crap. I don't think I've ever experienced anything quite like that! My losses ballooned to illogical levels in a heartbeat before getting cut in more than half over the last hour or so and returning to more logical levels (given contracting Vol, etc). SQUEEZE. It's a good thing I'm very careful about sizing. The market can and will test you with illogical moves at times. Imagine getting a margin call and trying to tell the guy "but the VIX was declining and the underlying only moved up 1.3%. How did the option price explode higher like that? Your Platform model said it would only be half of that!" Lol
DigiNomad, I initially purchased a
Posted by junkie on 17th of May 2023 at 04:03 pm
DigiNomad, I initially purchased a 50-point wide BCS and immediately received a notice of an impending margin call for $1,000. The margin required is $100 per $SPX point for a short call or put position. So I halved the spread. My maximum loss on it is the margin, I think. I expect the premium to drop within a month, and I could either sell the BCS or let it expire worthless. I could have gone to 30DTE, but I am playing it lightly till I know how it behaves.
The 3ATR on the weekly chart is 4367 on /ES, so this BCS should bring me income.
Junkie, Here's your trade profile
Posted by DigiNomad on 17th of May 2023 at 04:15 pm
Junkie, Here's your trade profile (as it stands now, not when you bought it).
You could lose up to $2100, but I would cut losses and roll out and up at about a $700 loss.
By all means, keep your spread width as small as is comfortable. I purposefully choose a width that allows me to have at least 6 spreads in play from the beginning. That way I can scale in and out (as Matt sort of described in his post). Your max confidence point is typically at the beginning of the trade. Once it ages, the probability of something going against your thesis grows.
XSP is also an option at 1/10th the size of SPX with the same tax benefits (but less liquidity)
DigiNomad, thanks for the trade
Posted by junkie on 17th of May 2023 at 04:22 pm
DigiNomad, thanks for the trade profile. I used a TD Ameritrade account. I could view the same in the IB.
I received $330 credit, so about $700 is a double of the credit received. If closed for a loss, I would open another BCS with delta 0.15 at the time to defend it for the amount of a loss on the same expiry date. Correct? Thank you for your mentorship!
If you are playing with
Posted by DigiNomad on 17th of May 2023 at 04:28 pm
If you are playing with sizes that come anywhere near your margins, I would definitely advise the standard defense for short call spreads - roll out a month, and up to a strike that gives you the same amount of premium that you just bought back when taking the loss. You might not be able to go all the way up to another 16 delta strike, but you want to keep the premium level the same as the position you just conceded, or you are potentially locking in a loss. *TastyTrade would advise that you should never roll out and up unless you're taking in more credit...I'm sometimes fine with a wash on the credit, if it gives me a safer level to be short.
The method I described of rolling up in the same month and doubling down the amount of contracts is only safe (relatively speaking) if you are trading VERY small relative to your net liquidation (premium sold under 4% of net liq, or so).
DigiNomad, I can free up
Posted by junkie on 17th of May 2023 at 04:36 pm
DigiNomad, I can free up some buying power once I get a feel of the method. I am holding two losing put positions at the moment -- based on Jim Rickards Income strategy (which does not seem to work at all) -- which should be resolved one way or the other.
Is 30DTE are too volatile for this purpose?
30 DTE is fine. But
Posted by DigiNomad on 17th of May 2023 at 04:41 pm
30 DTE is fine. But with the VIX this low, I find I have to move out farther to sell levels I'm comfortable with (after listening to Matt & Steve every night, of course )
It's almost hard to lose with credit spreads unless you take too much risk or get greedy. You are literally the House...and "The House always wins." I'm being facetious, but only a little. The odds are grossly in the favor of the person selling premium vs buying it. If you stick to a plan and have solid risk management in place as part of that plan, you will be successful. Don't swing for the fences!
30DTE should drop the premium
Posted by junkie on 17th of May 2023 at 04:50 pm
30DTE should drop the premium faster, I reckon. I am going to play this lightly, keeping in mind the 4300 target on SPX, which everyone knows about. Selling the premium is the way to go!
I will post my developments on this blog. I like to let the position expire worthless although premium drops fast in the last 3 weeks before expiry. Thank you again!
Watch some TastyTrade content on
Posted by DigiNomad on 17th of May 2023 at 04:55 pm
Watch some TastyTrade content on YouTube or their website. They have study after study showing which DTE, delta, etc are best. They approach it very objectively. For example, based on many studies conducted, they make the case that you should NOT hold until expiration. In fact, they say the sweet spot is to take profits at 50% and manage at 21 DTE. I don't always follow their recommendations on this point (greed), but I never hold until expiration....maybe 1% of the time over the last 15 years or so.
For what it's worth, don't make the mistake of getting sucked into that world and forgetting about BPT - I think this group and the newsletters are critical to my success as a credit spread trader!
I know of the argument
Posted by junkie on 17th of May 2023 at 05:00 pm
I know of the argument against holding to expiration for 0DTE. The last week may add almost nothing to the credit owing but will hog up the margin. It is a very good argument against doing that.
Junkie, DigiNomad. You guys are
Posted by mundy on 17th of May 2023 at 09:16 pm
Junkie, DigiNomad. You guys are sharing some very good option trades but I must warn the newby's that unless they have been trading options for some time and have good experience doing so that these are high risk option trades. However I have posted the trade on my TOS paper trading account and will follow the trade as you guys post. Good Luck Junkie.
mundy, selling premium is inherently
Posted by junkie on 18th of May 2023 at 01:21 am
mundy, selling premium is inherently risky. The bottom line is either 50% of the credit received (about $160 per spread) in 2 months is either worth the trouble of holding a position or not.
Yes sizing and planning is
Posted by matt on 17th of May 2023 at 03:57 pm
Yes sizing and planning is what a big factor for handling emotions esp on stocks or positions you want to hold longer - if my size is too big, I just can't mentally stop myself from exiting on a nice move too early. One strategy I try to do is buy a large position so that I can satisfy my drug selling addiction, then I try to keep a small core; for example if I bought 5000 shares, maybe I end up keeping 500 or 1000. If I bought a normal sized position it's too easy to just scale out and lose that position
again trading is what I call a mind fuck - so many emotions and disciplines and other things to deal with
most of us don't have pointy ears like Spock from Star Trek we were have mastered our emotions