Thursday, November 16, 2006
options
This is in response to a friends question regarding selling verticle credit spreads with only 5 point spreads on the SPX. Like sell Dec 1460/buy Dec 1465. It's a good trade but you have to use limits to get your spread filled at decent prices. Sometimes they will and sometimes they won't.
I don't usually do straight verticle credit spreads, and if I do they wouldn't be that tight (5 point spread on spx). The problem I see is that the Bid Ask spreads are going to be hard to overcome with them being so close. I prefer to do diagonals but if you put these trades in with limit orders so you get your spread price they should work.
As far as the individual strikes, I am short almost the exact strikes (1460 and 1325) as what you are proposing so I like the levels, the only difference is my longs are in March and are at higher levels (diagonals). My trades have more risk.
For example on the call side I am short Dec 1460 but long March 1550. On the put side I am short Dec 1300 but long March 1100. When I sell these diagonals I try to sell them for the same price or close. ie. 1460's for 50 and 1550's for 50. Then of course I use the March 1550's as my long legs all the way to March. Which means I may be selling 5-6 calls against that one long option.
Trader X
I don't usually do straight verticle credit spreads, and if I do they wouldn't be that tight (5 point spread on spx). The problem I see is that the Bid Ask spreads are going to be hard to overcome with them being so close. I prefer to do diagonals but if you put these trades in with limit orders so you get your spread price they should work.
As far as the individual strikes, I am short almost the exact strikes (1460 and 1325) as what you are proposing so I like the levels, the only difference is my longs are in March and are at higher levels (diagonals). My trades have more risk.
For example on the call side I am short Dec 1460 but long March 1550. On the put side I am short Dec 1300 but long March 1100. When I sell these diagonals I try to sell them for the same price or close. ie. 1460's for 50 and 1550's for 50. Then of course I use the March 1550's as my long legs all the way to March. Which means I may be selling 5-6 calls against that one long option.
Trader X
