This last week we hosted a webinar exclusive to our community here at TheOptionClub.com. The featured speaker was Steve Lentz, who has been an options educator for the CBOE's Options Institute, the Options Industry Counsel, the Aussie Stock Exchange, and now us...
Steve is currently the Director of Education with OptionVue, as well as a mentor in their affiliated mentoring program. He is extremely knowledgeable when it comes to trading, and he is a superb teacher.
I hope you caught the presentation, but if not you can still view it at:
Steve Lentz tackled the myth about option sellers having an edge in the market.
Is it true? Do option sellers really have an advantage?
Well, watch the video but the short answer is "maybe." It all comes down to an understanding of implied volatility, the option pricing models, and doing a little bit of analysis. Steve showed us the basics of that last week.
He also started talking about credit spreads and the rookie mistakes he has seen so many traders make. We talked about high probability credit spreads and the necessary risk to reward ratios and win rates we need to achieve if we hope to be profitable.
It all came down to "practice, scrimmage, play..." What?
The "practice" part of trading is back-testing, the "scrimmage" is paper trading, and the "play" is money in the market. How many of us have gone to a seminar or learned about some trading idea that got us enthused, then ran home and tried trading it the following week?
I have and so have you. We've all done it. Was it a mistake? Oh, sure it was. So, what's the next step?
At the end of the video, Kevin Ritter from OptionVue outlined an Express Training product that they put tother...just for us.
This last summer Kevin and I worked out a multi-part presentation featuring another of OptionVue's educators. It was awesome. Kevin and I then started talking about their mentoring program. It's an excellent program and well worth the money, but it is expensive...
I wanted to get something that any one of us could afford, because I think that the guy with the $5,000 account should be just as prepared as the guy with the $500,000 account. Kevin agreed and we put together the Express Training product. It's the first time OptionVue has done this and it's just for us.
Now, it's not the full blown mentoring program, but for 30-days we're going to focus on one "bread and butter" trading strategy...the credit spread.
Why the credit spread?
You can trade credit spreads in most market conditions. It's a defined risk trade. It let's us take advantage of theta decay. It gives us an opportunity to create an edge...
...and that's exactly what we're going to learn how to do.
The mentoring program is designed to take us from theory to practical application. We'll learn about credit spreads, but then learn to use a trading system, back-test it, and trade it like a business. We're going to learn how to establish a customized trading plan, how to find appropriate trade candidates, how to open and manage positions, and how to close them.
I'm already signed up.
You're not going to find this high level training anywhere for this price. I know. I've looked. This course is not generally available. It's just for you, me, and the other members.
It includes personal mentoring sessions with Steve Lents. What do you think that would cost if you paid for them ala cart?
Oh, but you need software and data feed, right? It's included. Kevin also agreed to provide access to their on-line educational library.
The only thing I didn't get them to include was the trading account. You'll have to use your own.
This coming Wednesday, October 29, 2008, is the next training session. If you want to join us for the Express Training you must be registered no later than 2:00 p.m. on that day.
The details of the Training package are covered in the video re-play. You can also find the same information and get registered here:
Like I said, I am already signed up and will be part of this mentoring class. The opportunity to refine my personal trading, to become more business-like in managing my trading, is just too valuable to pass up. At $499, you may not have such an opportunity again.
Get yourself registered now and I'll see you next Wednesday for class...
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Showing posts with label credit spread. Show all posts
Showing posts with label credit spread. Show all posts
Saturday, October 25, 2008
Thursday, July 26, 2007
Selling Vertical Put Spreads
This month I have switched from trading credit spreads and iron condors on the SPX, a cash based index that mirrors the S&P 500, to trading similar positions on the RUT, also a cash based index but one that mirrors the Russel 2000 Small Cap Index.
The reason for this change is that the SPX is only traded in one pit on the CBOE, and my sense is that it is getting increasingly more difficult to get good fills especially when things get busy. In contrast, the RUT is traded on multiple exchanges including several electronic exchanges. Hopefully, this provides for a more efficient market and better overall value for me...the retail trader.
This morning we saw the markets quickly shed a fair bit of their value, but after about 45 minutes of trading they seemed to find their footing although I still see red on the ticker. Nonetheless, I saw this as an opportunity to sell some puts since they were in increasingly high demand.
A word of caution here...
I do not sell naked puts, especially on cash based indexes. This is a dangerous game and not one suitable for most, if not all, traders such as you and me. The reason is because puts act as insurance contracts for the market. If you're selling them, you're acting as a defacto insurance carrier and had better have the capital to pay the losses. Let's just say a bad month could be real trouble.
However, it is very easy to limit your risk of loss by simultaneously purchasing a put contract with each one you sell. You simply buy a put a relatively cheaper put than the one you sell and the difference in price is credited to your account.
This strategy is commonly referred to as a vertical credit spread or, in the case of put options, a bull put spread. So, I have sold some vertical put credit spreads this morning and with a little luck this market sell-off will be short lived.
Good trading!
Christopher Smith
TheOptionClub.com
The reason for this change is that the SPX is only traded in one pit on the CBOE, and my sense is that it is getting increasingly more difficult to get good fills especially when things get busy. In contrast, the RUT is traded on multiple exchanges including several electronic exchanges. Hopefully, this provides for a more efficient market and better overall value for me...the retail trader.
This morning we saw the markets quickly shed a fair bit of their value, but after about 45 minutes of trading they seemed to find their footing although I still see red on the ticker. Nonetheless, I saw this as an opportunity to sell some puts since they were in increasingly high demand.
A word of caution here...
I do not sell naked puts, especially on cash based indexes. This is a dangerous game and not one suitable for most, if not all, traders such as you and me. The reason is because puts act as insurance contracts for the market. If you're selling them, you're acting as a defacto insurance carrier and had better have the capital to pay the losses. Let's just say a bad month could be real trouble.
However, it is very easy to limit your risk of loss by simultaneously purchasing a put contract with each one you sell. You simply buy a put a relatively cheaper put than the one you sell and the difference in price is credited to your account.
This strategy is commonly referred to as a vertical credit spread or, in the case of put options, a bull put spread. So, I have sold some vertical put credit spreads this morning and with a little luck this market sell-off will be short lived.
Good trading!
Christopher Smith
TheOptionClub.com
Sunday, April 22, 2007
Catching Up With The Market and Our Trading Results
It's been a little while since I've been able to post. With school out for Spring Break it was time to get away with the family. Upon our return, it was time to catch up with all of the work that accumulated while we were off having fun.
The April spreads were closed. With the market rallying hard heading into expiration, we were forced to close our trade for a loss. Let's tally up the damage.
As of February's expiration, we had managed to rack up an 11.75% return, or a total combined credit of $1.10. These profits were generated from those trades expiring in January and February, and are documented on this blog.
We sat March out. No trades were opened because I could not find a spread that provided sufficient return to justify the risk of opening it. That worked out well because the market sold off hard on February 27th.
For April, a $1.20 credit was generated from the sale of a 1,460 - 1,470 bear call spread. At that time, the outlook for the index was bearish. The bulls returned early, however. A bull put spread was opened at 1,355 - 1,365 for a .60 credit. The total credit for the trade was now $1.80.
The suspense grew slowly for the remainder of the month. The market did not trigger an adjustment of our position until Friday, April 13, 2007. Prior to that date, I had become concerned and decided to tighten up the spread. The put spread was closed for a .10 debit. The long 1,470 call was sold and rolled down to $1,465, for a net debit of .60. The net credit on the trade was now $1.10.
When the trigger was reached, we were left with the weekend to evaluate potential adjustment. With less than one week until expiration all we could do was close the trade. Resistance was expected at 1,460, and it appeared that we might be able to close the trade for a modest debit. It just was not meant to be. The bulls smashed resistance at 1,460 early on Monday morning and kept on running.
The put spread was closed for a nominal sum, but the call spread cost us a pricey $3.40.
That left me with a net loss for the month equal to $3.40 - $1.10 = $2.30.
The year-to-date return is a loss of $1.20 or -12%.
From here, we shake off our disappointment and move onto the next month.
Christopher Smith
TheOptionClub.com
The April spreads were closed. With the market rallying hard heading into expiration, we were forced to close our trade for a loss. Let's tally up the damage.
As of February's expiration, we had managed to rack up an 11.75% return, or a total combined credit of $1.10. These profits were generated from those trades expiring in January and February, and are documented on this blog.
We sat March out. No trades were opened because I could not find a spread that provided sufficient return to justify the risk of opening it. That worked out well because the market sold off hard on February 27th.
For April, a $1.20 credit was generated from the sale of a 1,460 - 1,470 bear call spread. At that time, the outlook for the index was bearish. The bulls returned early, however. A bull put spread was opened at 1,355 - 1,365 for a .60 credit. The total credit for the trade was now $1.80.
The suspense grew slowly for the remainder of the month. The market did not trigger an adjustment of our position until Friday, April 13, 2007. Prior to that date, I had become concerned and decided to tighten up the spread. The put spread was closed for a .10 debit. The long 1,470 call was sold and rolled down to $1,465, for a net debit of .60. The net credit on the trade was now $1.10.
When the trigger was reached, we were left with the weekend to evaluate potential adjustment. With less than one week until expiration all we could do was close the trade. Resistance was expected at 1,460, and it appeared that we might be able to close the trade for a modest debit. It just was not meant to be. The bulls smashed resistance at 1,460 early on Monday morning and kept on running.
The put spread was closed for a nominal sum, but the call spread cost us a pricey $3.40.
That left me with a net loss for the month equal to $3.40 - $1.10 = $2.30.
The year-to-date return is a loss of $1.20 or -12%.
From here, we shake off our disappointment and move onto the next month.
Christopher Smith
TheOptionClub.com
Friday, April 13, 2007
Adjusting An Iron Condor Near Expiration
The market took back all of the ground it gave up on Wednesday, and now is hovering within 2 points of my adjustment trigger. A comment was posted to my last post questioning when I will close the spread and the short answer is when I can take my profit or am otherwise forced to do so by the market.
The put spread is ready to close. It is a 10 points spread and I have placed a limit order to close it for a .10 debit. That allows me to keep .50 of the original .60 points I opened it for. If filled, I am left with a bear call spread.
Being this close to to expiration with only 12 points of room between the short strike and the market is a worrisome place to be. The reason it is concerning is because the market, as it has shown us recently, is capable of making a 10 point or better move. A big upside move could really hurt a 10 points spread.
I am taking some of the potential sting out such an event by rolling the long 1,470 call down to 1,465. This will leave me with a 5 point spread, cutting my risk in half. It will cost me some of my credit, but at this point protecting against catastrophe is more important than maximizing profit potential on a credit spread.
Mind your risk, too!
Christopher Smith
TheOptionClub.com
The put spread is ready to close. It is a 10 points spread and I have placed a limit order to close it for a .10 debit. That allows me to keep .50 of the original .60 points I opened it for. If filled, I am left with a bear call spread.
Being this close to to expiration with only 12 points of room between the short strike and the market is a worrisome place to be. The reason it is concerning is because the market, as it has shown us recently, is capable of making a 10 point or better move. A big upside move could really hurt a 10 points spread.
I am taking some of the potential sting out such an event by rolling the long 1,470 call down to 1,465. This will leave me with a 5 point spread, cutting my risk in half. It will cost me some of my credit, but at this point protecting against catastrophe is more important than maximizing profit potential on a credit spread.
Mind your risk, too!
Christopher Smith
TheOptionClub.com
Monday, March 26, 2007
S&P500 In A Confirmed Rally
On Friday, March 23, 2007, stocks ended mixed on lower volume, with the NASDAQ giving up 0.1% and the S&P500 and S&P 600 gaining 0.1% and 0.4%, respectively. However, this mixed trading session capped the market's biggest gains in more than 6 months.
This last week saw gains of 3.2% on the NASDAQ, 3.5% on the S&P 500, and a monster 4.1% gain on the S&P 600. These gains took place with oil trading above $62 per barrel and while the Iranians captured British Marines and naval vessels.
The overall market is in a confirmed rally. Confirmation came on Wednesday when we saw higher price gains on increased volume. Wednesday also saw the S&P500 push through resistance around 1,410 and retake its 50-day moving average at 1,424. The S&P closed on Friday at 1,436.
If this market rolls over and continues the downward trend initiated back on February 27th, the next price target would be about 1,350. This area constitutes about a 50% price retracement from the start of the last rally in July '06.
The question is whether the rally will continue to achieve new price highs. The prior high was at 1,460, which a week ago seemed like safe ground for an April bear call spread. I am not convinced that the market will take this ground by April expiration, but our adjustment trigger is lower than that.
Our plan right now is to continue monitoring the market, looking for an opportunity to open a bull put spread. If the market continues to consolidate its gains, we may have an opportunity to close our call spread for a price near what we received when it was opened. If that occurs, it may be a prudent move to take advantage of it and preserve our capital.
Good trading!
Christopher Smith
TheOptionClub.com
This last week saw gains of 3.2% on the NASDAQ, 3.5% on the S&P 500, and a monster 4.1% gain on the S&P 600. These gains took place with oil trading above $62 per barrel and while the Iranians captured British Marines and naval vessels.
The overall market is in a confirmed rally. Confirmation came on Wednesday when we saw higher price gains on increased volume. Wednesday also saw the S&P500 push through resistance around 1,410 and retake its 50-day moving average at 1,424. The S&P closed on Friday at 1,436.
If this market rolls over and continues the downward trend initiated back on February 27th, the next price target would be about 1,350. This area constitutes about a 50% price retracement from the start of the last rally in July '06.
The question is whether the rally will continue to achieve new price highs. The prior high was at 1,460, which a week ago seemed like safe ground for an April bear call spread. I am not convinced that the market will take this ground by April expiration, but our adjustment trigger is lower than that.
Our plan right now is to continue monitoring the market, looking for an opportunity to open a bull put spread. If the market continues to consolidate its gains, we may have an opportunity to close our call spread for a price near what we received when it was opened. If that occurs, it may be a prudent move to take advantage of it and preserve our capital.
Good trading!
Christopher Smith
TheOptionClub.com
Friday, March 23, 2007
Possible Adjustment of SPX Credit Spread
We are seeing some buoyancy in the market, which is not forcing an adjustment to the bear call spread but just making for a mild level of anxiety. Our adjustment trigger is in place and, given the opportunity, a put spread can be sold to enhance the credit for this trade. What we are waiting to see is whether the market loses upward momentum here.
Also, Karen Guerra, Larry McMillan's assistant, got back in touch with me. She and Larry have "sweetened the deal" for my readers. You may recall that we were offered a pretty good discount on a live seminar with Larry McMillan. Well, they are also throwing in Larry's $599 DVD home study course at no charge. All the details are here:
Larry McMillan Seminar Discount
Or, just call them at (800) 724-1817 and tell them you're a member of TheOptionClub.com.
Good trading!
Christopher Smith
TheOptionClub.com
Also, Karen Guerra, Larry McMillan's assistant, got back in touch with me. She and Larry have "sweetened the deal" for my readers. You may recall that we were offered a pretty good discount on a live seminar with Larry McMillan. Well, they are also throwing in Larry's $599 DVD home study course at no charge. All the details are here:
Or, just call them at (800) 724-1817 and tell them you're a member of TheOptionClub.com.
Good trading!
Christopher Smith
TheOptionClub.com
Wednesday, March 21, 2007
Credit Spread on the SPX
With the SPX hovering near break even today there is little to discern. Yesterday's advance was again on unconvincing volume.
A bullish spread is not being sold right now, but may be entertained if we see the market trade lower. The bear call spread has lost a significant amount of value in both options, a reflection of both theta and falling implied volatility. It is not ready to be closed, and probably will not be ready for a few weeks.
Good trading!
Christopher Smith
TheOptionClub.com
A bullish spread is not being sold right now, but may be entertained if we see the market trade lower. The bear call spread has lost a significant amount of value in both options, a reflection of both theta and falling implied volatility. It is not ready to be closed, and probably will not be ready for a few weeks.
Good trading!
Christopher Smith
TheOptionClub.com
Sunday, March 18, 2007
Credit Spread Trading and the SPX
Last week saw the SPX make a relatively large downward move on volume, with the market closing near its lows for the day. This occurred on Tuesday and suggested that further downward movement was in store.
The next day saw the further selling, with the SPX actually breaching the next Fibonacci level. That same day we had a reversal, on volume, with the market closing above the prior day's close and near its intra-day highs. A bullish sign.
So, where does that leave us?
The market remains in a bearish correction, but there has now been an attempted rally. That rally attempt began on Tuesday, with the intra-day reversal. The market must now follow through on volume if this attempted rally has hope of pushing to new highs.
Let's look at the bigger picture, however. What you see above is a long term, monthly chart of the S&P 500 dating back to before the current bull market began. From a long-term view we are still in an interim bearish trend, but is this correction nearing an end?
I sought confirmation of this from MarketClub's chart analysis software and stole an image capture of that analysis, which I have inserted below. What is nice about this analysis is that it is based on defined, objective criteria and the factors being considered are clearly identified.
The outlook remains decidedly bearish, which is consistent with our current directional bias. We have seen one day of buying on volume since the market sold off on February 27th, but one good day does not make for a market rally. Until we see evidence of further institutional buying you will want to be cautious of further potential downside.
Meanwhile, my 1,460 - 1,470 bear call spread remains safely out of trouble. I will continue looking for an opportunity to roll into an iron condor, but I am being rather cautious about this because I want to remain safely away from the market and I also want a healthy credit to justify the risk of selling a bullish spread. Patience and caution are my current watchwords.
Good trading!
Christopher Smith
TheOptionClub.com
The next day saw the further selling, with the SPX actually breaching the next Fibonacci level. That same day we had a reversal, on volume, with the market closing above the prior day's close and near its intra-day highs. A bullish sign.
So, where does that leave us?
The market remains in a bearish correction, but there has now been an attempted rally. That rally attempt began on Tuesday, with the intra-day reversal. The market must now follow through on volume if this attempted rally has hope of pushing to new highs.
Let's look at the bigger picture, however. What you see above is a long term, monthly chart of the S&P 500 dating back to before the current bull market began. From a long-term view we are still in an interim bearish trend, but is this correction nearing an end?I sought confirmation of this from MarketClub's chart analysis software and stole an image capture of that analysis, which I have inserted below. What is nice about this analysis is that it is based on defined, objective criteria and the factors being considered are clearly identified.
The outlook remains decidedly bearish, which is consistent with our current directional bias. We have seen one day of buying on volume since the market sold off on February 27th, but one good day does not make for a market rally. Until we see evidence of further institutional buying you will want to be cautious of further potential downside.Meanwhile, my 1,460 - 1,470 bear call spread remains safely out of trouble. I will continue looking for an opportunity to roll into an iron condor, but I am being rather cautious about this because I want to remain safely away from the market and I also want a healthy credit to justify the risk of selling a bullish spread. Patience and caution are my current watchwords.
Good trading!
Christopher Smith
TheOptionClub.com
Wednesday, March 7, 2007
Bear Call Spread Opend on the SPX
Monday, I told you I'd go hunting for bearish credit spreads. The market cooperated yesterday, pushing higher than I anticipated.
Is the correction over?
Certainly, stocks did tally some healthy gains. Volume was light, however.
Today, the market tried to add to those gains but before market close all of the major indices were in the red.
Tuesday was a good day in other respects, however. That big push upwards made it possible to sell bear calls spreads at more distant strikes and still pull in a handsome credit.
I sold the April '07 1,460 - 1,470 bear call spread for a $1.20 credit. My maximum risk is:
Any bull put spread will need to be at a distant strike and bring in a healthy credit. I placed orders for one today, but with the market spending most of the day in the green and the VIX subsiding the order remained unfilled.
Tomorrow's another day and I would not be surprised to see us open down after a disappointing close today.
Christopher Smith
TheOptionClub.com
Is the correction over?
Certainly, stocks did tally some healthy gains. Volume was light, however.
Watch volume for tell tale signs of institutional money.
Today, the market tried to add to those gains but before market close all of the major indices were in the red.
Tuesday was a good day in other respects, however. That big push upwards made it possible to sell bear calls spreads at more distant strikes and still pull in a handsome credit.
I sold the April '07 1,460 - 1,470 bear call spread for a $1.20 credit. My maximum risk is:
$10 - $1.20 = $8.80 - or -The maximum return on risk is:
$880.00 per spread
$1.20 / ($10 - $1.20) = 13.6%The objective now is to open a bull put spread, which will further reduce the maximum risk and enhance the return. In the current market conditions, further downside is not only possible but, personally, I expect it.
Any bull put spread will need to be at a distant strike and bring in a healthy credit. I placed orders for one today, but with the market spending most of the day in the green and the VIX subsiding the order remained unfilled.
Tomorrow's another day and I would not be surprised to see us open down after a disappointing close today.
Christopher Smith
TheOptionClub.com
Tuesday, March 6, 2007
Bear Call Spreads on the SPX
Yesterday the market sold of, but stayed above the 1,370 support level I mentioned in Sunday's post. The SPX closed at 1,374, just a hair above it's low for the day.
The market opened decidedly up this morning, but it seems a bit early for the institutions to shift from sell to buy mode. I still expect to see us trade lower over the coming days.
I did place orders for bearish credit spreads, yesterday. They were not filled as the market traded lower and I was not willing to give chase. I'll be looking again today.
Remember, there is a tele-seminar tonight.
Christopher Smith
TheOptionClub.com
The market opened decidedly up this morning, but it seems a bit early for the institutions to shift from sell to buy mode. I still expect to see us trade lower over the coming days.
I did place orders for bearish credit spreads, yesterday. They were not filled as the market traded lower and I was not willing to give chase. I'll be looking again today.
Remember, there is a tele-seminar tonight.
Christopher Smith
TheOptionClub.com
Monday, March 5, 2007
Credit Spreads and Preparing For Future Corrections
As anticipated, the market is down again today. I have scouted out a couple bear call spreads on the S&P 500 that look good, due in no small part to the pumped up implied volatility.
Those spreads are strategically placed and somewhat aggressively priced, so I may or may not see a fill today. I am not in a hurry to jump into the market.
Now, if you got burned in last week's sell-off, you may want to set aside some time tomorrow.
Ron Ianieri and Bill Johnson are hosting a tele-seminar tomorrow evening to outline some steps you might have taken to protect yourself from such events.
There is no cost to attend, you just have to register in advance.
Register For Tomorrow's Free Tele-Seminar
Christopher Smith
TheOptionClub.com
Those spreads are strategically placed and somewhat aggressively priced, so I may or may not see a fill today. I am not in a hurry to jump into the market.
Now, if you got burned in last week's sell-off, you may want to set aside some time tomorrow.
Ron Ianieri and Bill Johnson are hosting a tele-seminar tomorrow evening to outline some steps you might have taken to protect yourself from such events.
There is no cost to attend, you just have to register in advance.
Register For Tomorrow's Free Tele-Seminar
Christopher Smith
TheOptionClub.com
Wednesday, February 28, 2007
Credit Spreads and Market Collapse
What can I say that you have not already read on every other web site, in a newspaper, or heard on radio or television?
This was a huge sell-off!
Let's get a couple things straight. You could not have predicted this. These things can and do happen in the market and you need to plan for them. It has to be part of your trading methodology.
If you were short a put spread on one of the indices, chances are you'll experience a loss this month. Your job is not to avoid the loss, your job is to minimize the loss.
We have experienced a change in trend. This is when our credit spread strategy is vulnerable to a loss. Limit the loss and earn it back over the remaining months.
So, how is CROX doing? Like the rest of the market it sold off, too. My trading plan has me holding the position unless the stock breaks below my long strike. That gives me the option of taking assignment on the stock, closing the spread for a partial loss, or rolling the spread forward.
This market changed my thinking somewhat. I am short the 45/50 bull put spread. I decided to roll into an iron butterfly by selling a 50/55 call spread. This increased my credit by more than double. The bigger credit has reduced my maximum risk. The "price" I paid is that my profit is now dependent upon CROX remaining in a range.
If CROX holds current price levels I'll hold the trade heading into expiration.
The futures are trading higher this morning. Let's see what happens!
This was a huge sell-off!
Let's get a couple things straight. You could not have predicted this. These things can and do happen in the market and you need to plan for them. It has to be part of your trading methodology.
If you were short a put spread on one of the indices, chances are you'll experience a loss this month. Your job is not to avoid the loss, your job is to minimize the loss.
We have experienced a change in trend. This is when our credit spread strategy is vulnerable to a loss. Limit the loss and earn it back over the remaining months.
So, how is CROX doing? Like the rest of the market it sold off, too. My trading plan has me holding the position unless the stock breaks below my long strike. That gives me the option of taking assignment on the stock, closing the spread for a partial loss, or rolling the spread forward.
This market changed my thinking somewhat. I am short the 45/50 bull put spread. I decided to roll into an iron butterfly by selling a 50/55 call spread. This increased my credit by more than double. The bigger credit has reduced my maximum risk. The "price" I paid is that my profit is now dependent upon CROX remaining in a range.
If CROX holds current price levels I'll hold the trade heading into expiration.
The futures are trading higher this morning. Let's see what happens!
Tuesday, February 27, 2007
SPX Selling Off and Implied Volatility Spiking
Wow! It's ugly out there. I'm looking at March, yes March, bull put credit spreads on the SPX.
What has changed?
Implied volatility has spiked with this morning's sell-off. The VIX is at 12.91, reflecting a desire in the market to buy put options.
Be cautious, however. This sell-off may be signaling a change in market direction, which is a dangerous time for us index credit spread traders. March options have just a bit more than a couple weeks left in them.
By the way, CROX is down but is still above our short strike.
Good trading!
Christopher Smith
TheOptionClub.com
What has changed?
Implied volatility has spiked with this morning's sell-off. The VIX is at 12.91, reflecting a desire in the market to buy put options.
Be cautious, however. This sell-off may be signaling a change in market direction, which is a dangerous time for us index credit spread traders. March options have just a bit more than a couple weeks left in them.
By the way, CROX is down but is still above our short strike.
Good trading!
Christopher Smith
TheOptionClub.com
Monday, February 26, 2007
Market Update and CROX Trade Review
The market has been non-commital lately. We do remain in an overall bull market, but the market has been difficulty making new highs and maintaining its gains.
These are difficult markets to trade. The low implied volatility makes it difficult to trade credit spreads. It's not a bad time to stay on the sidelines, which is exactly what we have done with our SPX trading, by virtue of our trading rules.
Our CROX trade is now demanding some of our attention. I looked at it over the weekend. My sense is that the shorts are trying to pressure to stock.
Today it opened below its 20-day moving average and is current down about .65 - .70. The 50-day moving average is below the level of our short strike, but not tremendously. We still have a small profit in the trade. CROX's primary trend is still up, so we are in a "wait and see" mode.
Tomorrow evening we have a complimentary tele-seminar scheduled. Visitors to this blog are welcomed. Additional information was posted yesterday on this blog and you can register here:
http://www.theoptionclub.com/support/ianieri-seminar.html
I am registered for the presentation and hope you can find the time to join us.
Good trading!
Christopher Smith
TheOptionClub.com
These are difficult markets to trade. The low implied volatility makes it difficult to trade credit spreads. It's not a bad time to stay on the sidelines, which is exactly what we have done with our SPX trading, by virtue of our trading rules.
Our CROX trade is now demanding some of our attention. I looked at it over the weekend. My sense is that the shorts are trying to pressure to stock.
Today it opened below its 20-day moving average and is current down about .65 - .70. The 50-day moving average is below the level of our short strike, but not tremendously. We still have a small profit in the trade. CROX's primary trend is still up, so we are in a "wait and see" mode.
Tomorrow evening we have a complimentary tele-seminar scheduled. Visitors to this blog are welcomed. Additional information was posted yesterday on this blog and you can register here:
http://www.theoptionclub.com/support/ianieri-seminar.html
I am registered for the presentation and hope you can find the time to join us.
Good trading!
Christopher Smith
TheOptionClub.com
Tuesday, February 20, 2007
Credit Spread Trading Update
A little downside in the market this morning. Nothing concerning and it seems that the selling has subsided.
I am still standing aside this month on the SPX credit spread strategy. I am not seeing anything compelling, and there are opportunities elsewhere that better justify the risk. We are already up for the year, so we will still be finishing the first quarter showing solid profit.
The volatility is better in some of the individual stocks. While this blog is primarily concerned with index trading, I have elected throw in some other material because it is important to realize that you do need to be flexible as a trader.
Good trading!
Christopher Smith
TheOptionClub.com
I am still standing aside this month on the SPX credit spread strategy. I am not seeing anything compelling, and there are opportunities elsewhere that better justify the risk. We are already up for the year, so we will still be finishing the first quarter showing solid profit.
The volatility is better in some of the individual stocks. While this blog is primarily concerned with index trading, I have elected throw in some other material because it is important to realize that you do need to be flexible as a trader.
Good trading!
Christopher Smith
TheOptionClub.com
Friday, February 16, 2007
CROX Credit Spread Trade Update
Hey,anyone open a credit spread on CROX yesterday or the day before?
Today CROX rebounded nicely off of support. The March 45/50 bull put spread has lost more than .50 of its value. That's a 10% return on risk in two days...
Christopher Smith
TheOptionClub.com
Today CROX rebounded nicely off of support. The March 45/50 bull put spread has lost more than .50 of its value. That's a 10% return on risk in two days...
Christopher Smith
TheOptionClub.com
Thursday, February 15, 2007
Analysis of Stock Chart on CROX
I need to follow up on the CROX trade because I have had several questions about it. First off, no you do not want to trade based solely on the IV or relative cost of the option position.
You need to do you homework and be smart about the positions you open, those that you take a pass on, and how you manage your risk. It is also true that CROX has sold off the last few days and I did receive one or two "catch a falling knife" comments.
Let's back up and take it from the top. Even with the selling over the last few days, CROX remains in an overall up-trend. For affirmation of my opinion you could always turn to the MarketClub Smart Scan analysis which says:
So, what's the over all picture?
The primary trend is up. CROX has pulled back to support. IV has pushed some additional value into the options. (See my prior post.) Following the Smart Scan advice, we would want to use tight money management stops for any trade. We might keep an eye on CROX and wait for a buy signal or for it to turn higher before opening a trade, but how you choose to time your entry is up to you.
Just make sure you have a plan should CROX break out of its longer term trend.
Trade well and mind your risk.
Christopher Smith
TheOptionClub.com
You need to do you homework and be smart about the positions you open, those that you take a pass on, and how you manage your risk. It is also true that CROX has sold off the last few days and I did receive one or two "catch a falling knife" comments.
Let's back up and take it from the top. Even with the selling over the last few days, CROX remains in an overall up-trend. For affirmation of my opinion you could always turn to the MarketClub Smart Scan analysis which says:
"Uptrend - CROCS INC (NASDAQ:CROX) - Smart Scan Chart Analysis is showing some near term weakness. However, this market remains in the confines of a longer term uptrend. Uptrend with tight money management stops."If you look at the above chart, you'll notice that CROX broke out, and has traded back to support. You'll notice that it has pretty well tracked with its moving averages. You will notice a red sell signal triggered a few days back, which may be a signal for short-term profit taking but it probably should not be used as a signal for getting short unless you are comfortable with counter trend trading. Stochastics demonstrates an oversold condition.
So, what's the over all picture?
The primary trend is up. CROX has pulled back to support. IV has pushed some additional value into the options. (See my prior post.) Following the Smart Scan advice, we would want to use tight money management stops for any trade. We might keep an eye on CROX and wait for a buy signal or for it to turn higher before opening a trade, but how you choose to time your entry is up to you.
Just make sure you have a plan should CROX break out of its longer term trend.
Trade well and mind your risk.
Christopher Smith
TheOptionClub.com
Wednesday, February 14, 2007
Credit Spreads and Implied Volatility
This is sort of like one of those fishing stories about the one that got away. For two days I had an open order to sell my put spread and had provided what I thought was more than sufficient room to allow the market maker to make a profit. I was well off the mid-point of the bid / ask spread. In fact, I had lowered by limit to my lowest acceptable credit.
Needless to say, I was not filled but it would have been a beautiful thing if I had been because I would now be poised to open a call spread with the market rebounding yesterday and again today.
With the rally, my plans for the put spread are discarded and I will have to evaluate everything from square one. The closest I dare sell a put spread is 1,385 and today I would receive a very slim price for the sale.
In selling a put spread, not only am I battling against the directional move of the index but I am also having to contend with a volatility level, as measured by the VIX, that is currently at its historic lows. The story is the same on the call side. There simply is not enough premium available at the strikes I would want to sell.
The above graphic reveals a Volcone demonstrating where Implied Volatility lies relative to historic volatility of the index measured over the last 12 months. The two dots represent current IV readings for the ATM March put and call options. The puts carry slightly more IV.
I do not want to push things and try to sell a spread closer to the money because if this rally has legs it will cost me. It is better I simply miss out one month and avoid the potential loss.
I am in a "sidelines" mode. I missed the opportunity to sell a put spread when the market corrected within its trend and the premiums are too thin on the call side. No order will be placed, but I will continue to watch things on the SPX to see if opportunities develop.
In the meantime, the extreme low reading on the VIX does suggest that it may be an good time to get long on Vega. That does not help us with a credit spread strategy, but there are other strategies that can take advantage of low volatility environments.
Christopher Smith
TheOptionClub.com
Tuesday, February 13, 2007
Using Fibonacci To Assess Market Pull-Back
There have been a few questions about specific methods I use to select strikes and time my trade entries. One tool I am using right now to assess a potential pull-back, so as to provide sufficient cushion for my short options, are Fibonacci retracement levels.
Fibonacci was an Italian mathematician who discovered that in nature certain numerical patterns repeat themselves. The retracement levels are projected using his ratios. If you would like to see how they are used, Bill Poulos has done a video demonstrating their use.
I do not spend a lot of effort trying to time market entries, but often will favor one side (bull put spread or bear call spread) and enter that side first. I then look for an opportunity to open the opposite side. With the recent selling and the fact we are in a bullish trend, I will try to open a bull put spread and then look for an opportunity to open a call spread. That has not worked the last two months and I have only been able to get into one side of the trade. That's okay. Some months it just does not work out.
My limit order did not fill yesterday. It will be open again today, but I am on the road so I will not be able to watch it.
Christopher Smith
TheOptionClub.com
Fibonacci was an Italian mathematician who discovered that in nature certain numerical patterns repeat themselves. The retracement levels are projected using his ratios. If you would like to see how they are used, Bill Poulos has done a video demonstrating their use.
I do not spend a lot of effort trying to time market entries, but often will favor one side (bull put spread or bear call spread) and enter that side first. I then look for an opportunity to open the opposite side. With the recent selling and the fact we are in a bullish trend, I will try to open a bull put spread and then look for an opportunity to open a call spread. That has not worked the last two months and I have only been able to get into one side of the trade. That's okay. Some months it just does not work out.
My limit order did not fill yesterday. It will be open again today, but I am on the road so I will not be able to watch it.
Christopher Smith
TheOptionClub.com
Monday, February 12, 2007
Picking Up From Yesterday's S&P 500 Analysis
The market is off slightly today and I am trying to get filled on a fairly distant bull put spread. As I discussed yesterday, there I want to give the S&P 500 a good deal of cushion to the downside. We are still in a bullish trend, but with recent short-term weakness I want to play it safe.
The new March bull put credit spread is being sold five point below where I sold the February spread. My limit order is priced right about the mid-point between the bid and ask. My thinking was that if there is more selling that they order may fill, but so far we've remained fairly steady at a 2 point loss for the day.
Christopher Smith
TheOptionClub.com
The new March bull put credit spread is being sold five point below where I sold the February spread. My limit order is priced right about the mid-point between the bid and ask. My thinking was that if there is more selling that they order may fill, but so far we've remained fairly steady at a 2 point loss for the day.
Christopher Smith
TheOptionClub.com
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