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Strategies & Market Trends : Options
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To: RoseCampion who wrote (1429)1/22/2000 12:25:00 AM
From: KFE  Read Replies (3) of 8096
 
Rose,

Are you doing these OTM credit spreads in puts (ie, bull spreads) or in calls (ie, bear spreads), or both?

Both

In equities, or in indexes?

Both but I like indexes better because of the narrow bid/asked spread and the liquidity. Having 60% your short term gains taxed at long term rates is also nice.

how do you go about selecting the underlying vehicle (stock or index), and what kind of methodology (if any <g>) do you have select the strikes of the long and short sides?

I don't have enough time to answer this fully right now but the following excerpts and links should give you a good idea of my strategy.

how do you determine what's a good OTM credit spread play?

The trade that I posted here Jan 800-805 for $2 was done one month prior to expiration when the index was 778. My break even point is 802 so the OEX has to go up 24 points or the equivalent of 350 Dow points or the trade is profitable. My cover point is either the short strike or my expiration break even point and I will not voluntarily break this. This will generally limit any loss to the credit received.

The majority of my OEX trades are done with two weeks or less to expiration. General guidelines:
2 weeks left-at least 20 points OTM and 1+ pt. credit on 5 pt. spread; 2+credit on 10 pt. spread.
1 week left- 10+ OTM and 1+ credit
1 day left- 5+ OTM and 1+ credit

Any major news or economic events scheduled between trade and expiration would affect decision. All opening transactions are entered as spreads with limit. I usually split the bid/asked spread and most times have no problem being executed at that price.If it reaches my cover point I will exit at bid/asked spread or leg out if I have a strong fell for the direction at that time. Every once in a while a gap opening will put a monkey wrench in my exit plans.

Message 12469477

Message 11843529

I haven't done credit spreads on gorillas but will look for some strategies. How much success have everyone here had at trading options such as QCOM between the bid/asked? When placing a limit spread order your odds are better at splitting the bid/asked spread because you are giving the market makers two sides to trade against.

Regards,

Ken




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