http://www.monthlycashthruoptions.com/index-option-trading-options-trading-blog/2010/sp-500-index/274/ Fri, 03 Dec 2010 02:05:26 +0000 hourly 1 http://wordpress.org/?v=3.3 http://www.monthlycashthruoptions.com/index-option-trading-options-trading-blog/2010/sp-500-index/274/comment-page-1/#comment-672 bradrr Sun, 03 Oct 2010 05:53:07 +0000 http://www.monthlycashthruoptions.com/index-option-trading-options-trading-blog/?p=274#comment-672 Trading credit spreads on the SPX, the S&P 500 index, is like Hotel California....you can check in, but you can't check out. Opening credit spreads on the SPX seems to be just fine and it feels great to bring in a solid 9% premium on a 90% probability spread that has less than 30 days to expiration. However, even though there is a lot of liquidity on the SPX options, it doesn't act like it where if our trade gets into trouble, it will cost 20% to 30% of our risk capital to make an ajustment, such as rolling it into the same month or into the following month. In other words, we won't have many chances to roll our spread if it gets in trouble and we'll pretty much be taking a 50% to 60% loss after rolling it just 2 times, which is not good. When trading credit spreads on the RUT, for example, if our spreads unexpectedly go in-the-money, it's quite possible to roll it for 6 to 9 months, if required, and we could still get back at least 50% of our maintenance, and sometimes as high as 70% of the original maintenance. One possible reason that it's difficult and expensive to make adjustments on SPX credit spreads is that it's only traded on one exchange, the CBOE, and not on the other 7 exchanges. In contrast, options on the RUT are traded on 6 exchanges, and options on the SPY are traded on all 8 exchanges. It seems that the more exchanges the options are traded on, the more competition there is and thus the cheaper it is to make adjustments on the trade if necessary. Trading credit spreads on the SPX, the S&P 500 index, is like Hotel California….you can check in, but you can’t check out. Opening credit spreads on the SPX seems to be just fine and it feels great to bring in a solid 9% premium on a 90% probability spread that has less than 30 days to expiration. However, even though there is a lot of liquidity on the SPX options, it doesn’t act like it where if our trade gets into trouble, it will cost 20% to 30% of our risk capital to make an ajustment, such as rolling it into the same month or into the following month. In other words, we won’t have many chances to roll our spread if it gets in trouble and we’ll pretty much be taking a 50% to 60% loss after rolling it just 2 times, which is not good. When trading credit spreads on the RUT, for example, if our spreads unexpectedly go in-the-money, it’s quite possible to roll it for 6 to 9 months, if required, and we could still get back at least 50% of our maintenance, and sometimes as high as 70% of the original maintenance. One possible reason that it’s difficult and expensive to make adjustments on SPX credit spreads is that it’s only traded on one exchange, the CBOE, and not on the other 7 exchanges. In contrast, options on the RUT are traded on 6 exchanges, and options on the SPY are traded on all 8 exchanges. It seems that the more exchanges the options are traded on, the more competition there is and thus the cheaper it is to make adjustments on the trade if necessary.

]]> http://www.monthlycashthruoptions.com/index-option-trading-options-trading-blog/2010/sp-500-index/274/comment-page-1/#comment-670 Bob Wilber Fri, 01 Oct 2010 04:14:48 +0000 http://www.monthlycashthruoptions.com/index-option-trading-options-trading-blog/?p=274#comment-670 Given that SPY is essentially 1/10 of SPX what is the point of having spreads on both? You need to buy and sell 10 times as many options on SPY to have a trade equivalent to a SPX credit spread so the commissions are worse. The tax treatment is worse. And the options are American, so there is at least the possibility of being stuck with early assignment on the short options. Given that SPY is essentially 1/10 of SPX what is the point of having spreads on both? You need to buy and sell 10 times as many options on SPY to have a trade equivalent to a SPX credit spread so the commissions are worse. The tax treatment is worse. And the options are American, so there is at least the possibility of being stuck with early assignment on the short options.

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