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Creditspreads

Options Blueprint Series: Credit Spreads for Weekly PlaysIntroduction Credit spreads are a sophisticated options strategy involving the simultaneous purchase and sale of options of the same class and expiration, but at different strike prices. This approach is particularly effective in scenarios where the trader seeks to capitalize on premium decay while maintaining controlled risk exposure. Commonly used in volatile markets, credit spreads can offer a strategic advantage by allowing traders to position themselves in accordance with their market outlook and risk tolerance. Understanding Credit Spreads Selling one option and buying another with the same expiration date but different strike prices is done to earn the premium (credit) received from selling the higher-priced option, offset by the cost of buying the lower-priced option. There are two main types of credit spreads: Call Spreads and Put Spreads, specifically Bull Put Spreads and Bear Call Spreads. Bull Put Spreads: This strategy involves selling a put option with a higher strike price (receiving a premium) and buying a put option with a lower strike price (paying a premium), both on the same underlying asset and expiration. The trader anticipates that the asset's price will stay above the higher strike price at expiration, allowing them to keep the premium collected. This spread is termed "bull" because it profits from a bullish or upward-moving market. Bear Call Spreads: Conversely, this strategy involves selling a call option with a lower strike price (receiving a premium) and buying a call option with a higher strike price (paying a premium). The expectation here is that the asset's price will remain below the lower strike price at expiration. This spread is called "bear" because it benefits from a bearish or downward-moving market. Easy Way to Remember: Bull Put Spread: Remember it as "selling insurance" on a stock you wouldn't mind owning. You're betting the stock price stays "bullish" or at least doesn't drop significantly. Bear Call Spread: Think of it as "calling the top" on a stock. You're predicting that the stock won't go any higher, demonstrating a "bearish" outlook. Risk Profile The below graph illustrates the risk profile of a Bull Put Spread (Bullish Credit Spread that uses Puts): WTI Crude Oil Options Contract Specifications WTI Crude Oil options offer traders the opportunity to manage price risks in the highly volatile crude oil market. Key contract specifications include: Point Value: Each contract represents 1,000 barrels of crude oil, with each point of movement equivalent to $1,000. Trading Hours: Options trading is available from Sunday to Friday, providing extensive access to market participants around the globe. Margin Requirements: Initial margins are set by the exchange and are adjusted according to market volatility. USD 6,281 at the time of this publication (based on the CME Group website). Credit Spread Margin Calculation: For credit spreads, margins are typically lower as the margin for a credit spread in WTIC Crude Oil options is calculated based on the risk of the position, which is the difference between the strike prices minus the net credit received. This calculation ensures that the trader has sufficient funds to cover the potential maximum loss. (for example: a spread using the 78.5 and the 77.5 strikes which are 1 point away would require USD 1,000 minus the credit received). Understanding these specifications is crucial for traders looking to employ credit spreads effectively, ensuring compliance with financial requirements and alignment with trading strategies. Application to WTIC Crude Oil Options Credit spreads are particularly suited to the Weekly Expiration WTIC Crude Oil Options due to their ability to capitalize on the oil market's frequent price fluctuations. The strategy's effectiveness is enhanced by the oil market's characteristics: Market Dynamics: Crude oil prices are influenced by a myriad of factors including geopolitical events, supply-demand dynamics, and changes in global economic indicators. These factors can lead to significant price movements, creating opportunities for options traders. Strategy Suitability: Given the volatile nature of crude oil, credit spreads allow traders to take a directional stance (bullish or bearish) while limiting risk to the difference between the strike prices minus the credit received. This is particularly advantageous in a market where sudden price swings can occur, as it provides a safety buffer in case WTI Crude Oil moves against the trader and then comes to back towards the desired direction. By employing credit spreads, traders can leverage such market characteristics to potentially enhance returns while maintaining a clear risk management framework. Forward-looking Trade Idea For above TradingView price chart presents a trade setup as we consider the current market conditions and employ a put credit spread strategy, focusing on two UFO (UnFilled Orders) Support Price Levels that indicate potential support below the current market price of WTIC Crude Oil Futures. These levels suggest that prices are unlikely to drop below these thresholds anytime soon. Trade Setup: Utilize the 78.5 and 77.5 put strike prices for the credit spread. Sell a put option at the 78.5 strike price, where we expect the market will not fall below and collect 0.13 points (USD 130). Buy a put option at the 77.5 strike price to limit downside risk and define the trade’s maximum loss and pay 0.07 points (USD 70). Premium Collected: The credit received from this spread is the difference in premiums between the sold and bought puts, which contributes to the overall profitability if the options expire worthless. The net credit collected is USD 60 (130-70). Expected Outcome: The best scenario is for WTIC Crude Oil prices to stay above the 78.5 strike at expiration, allowing the trader to retain the full premium collected while minimizing risk. As seen on the above screenshot, we are using the CME Options Calculator in order to generate fair value prices and Greeks for any options on futures contracts. This trade is predicated on the belief that the underlying crude oil price will remain stable or increase, ensuring that the prices do not fall to the strike price of the sold put, thereby maximizing the potential for profit from the premiums. Risk Management Effective risk management is crucial when employing credit spreads in trading. Given the defined risk nature of credit spreads, several strategies can be implemented: Position Sizing: Adjust the number of spreads to fit within the overall risk tolerance of the trading portfolio, ensuring that potential losses do not exceed pre-determined thresholds. Stop-Loss Orders: Although credit spreads have a built-in maximum loss, setting stop-loss orders based on market price can help lock in profits or prevent excessive losses in volatile market conditions. Monitoring: Regular monitoring of market conditions and adjusting positions as necessary can help manage risks associated with unexpected market movements. Conclusion Credit spreads offer a strategic advantage for options traders looking to leverage market movements while controlling risk. By focusing on premium collection and employing a disciplined approach to risk management, traders can enhance their chances of success in the volatile WTIC Crude Oil options market. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
NYMEX:CL1!Education
by traddictiv
💡 SPX 0DTE Trading - FOMC Butterfly Strangle (Low risk)💡 SPX 0DTE Trading - Dec 14’22 Butterfly Strangle (Low risk/high reward) Dec 14’22 3925/3935/3945 Butterfly Put (Pin:Low on chart) Dec 14’22 4095/4105/4115 Butterfly Call (Pin:High on chart) Net Debit: $60 Max Profit: $940 Despite the “pump and dump” activity yesterday, positioning was bullish with calls being added overhead. There was +7% increase in SPX call open interest and -2% reduction in put open interest. It appears participants are under-positioned for a downside surprise. $4,000 is considered fair value due to balanced gamma (calls + puts) tied to that strike hence the mean reversion activity yesterday. It’s likely we break one way or the other today, $3,900 is major support (Put Wall) and $4,100 is major resistance (Call Wall). If $3,900 support gives way, markets are more susceptible to sharp downside moves and spikes in volatility as dealers may flip to a negative gamma position which adds to the downside pressure. On the upside, positioning between $4,100 - $4,200 is relatively light, meaning overhead resistance is weak. Since market direction is largely dependent on Powell we don’t see much directional edge. Therefore, we have opted to play a butterfly strangle centered around 4105 and 3935. This strategy is low risk/high reward with limited directional exposure. Max profit is realized at expiration and with FOMC at 2PM all we need to see is a move one way or the other for one of these spreads to juice up. 0DTE TRADERS ✅ Trade Ideas & Alerts ✅ Market Analysis ✅ Education
TVC:SPX
by 0dteTraders
6
💡 SPX 0DTE Trading - Nov 28’22 4025/4030 Bear Call Spread💡 SPX 0DTE Trading - Nov 28’22 4025/4030 Bear Call Spread Credit Received: $95 The equity net short positioning is gone, but we are far from a meaningful net long. Skew has caught a bid (put demand > call demand) lately as participants have closed out equity shorts. The increase in skew suggests people are switching into hedging the downside via puts, instead of running delta 1 shorts (short stock). In other words, in the case of a negative catalyst participant hedging may pressure markets lower and would quickly bid implied volatility. There may be a grab for some protection in the AM as participants await new data on 11/30. Ultimately we continue to view $4,000 as fair value due to balanced gamma (calls + puts) tied to that strike and this may invoke mean reversion activity today. If I am wrong on direction and the market rallies in the AM, I will simply convert to a butterfly. $4025 is our upside pin forecast.
OANDA:SPX500USD
by 0dteTraders
Credit Market Signals "Risk-Off"One chart illustrates the paradigm shift in risk assessment since the start of November. See the weekly GoNoGo Trend chart of option-adjusted corporate bond credit spreads which have now completely reversed trend conditions since Nov 1st, 2021 – from purple & pink “NoGo” bars through amber neutral and now the strongest blue “Go” bars as GoNoGo Oscillator broke out of a max squeeze to reach overbought extremes and consolidating gains. Credit spreads indicate the credit risk perceived by market participants/investors and are dynamic reflecting real-time market conditions, unlike credit ratings which are revised with some lag. They reflect the risk premia that investors apply to the debt of the issuer, relative to government debt. Or more precisely, the difference in yield between any debt security and the relevant government benchmark of the same maturity. Credit spreads often widen during times of financial stress wherein the flight-to-safety occurs towards safe-haven assets such as U.S. treasuries and other government securities. Throughout 2021, credit spreads have remained at historic lows and remained within the tightest decile of the past 25 years. Credit spreads have clearly bottomed and are now rising. This measure of investor's risk tolerance will have negative implications for highly valued growth equities and we could see headwinds for tech, discretionary, and communications sectors as well as weak relative performance for indexes like the Nasdaq vs DJIA.
FRED:BAMLC0A1CAAAShort
by TylerWood2020
SAGE 62% PoP Bearish Iron Condor after event My favorite bearish neutral trade for today. Losing only upside, I like the extreme high IVR values to play. Reasons to play this: 1/ After event, big selloff, high implied volatility. 2/ Extreme High Implied Volatility, good for credit strategies 3/ I can boost my original bearish vertical spread with 2 bottom legs at fib 0.786 to boosting my reward almost zero risk to the downside (max loss below strike 35 is $17 ...) 4/ Secure zones are 88$ and the 40$ So the winner is the negative delta Iron Condor Strategy. Max profit: $483 Probability of Profit: %62 Profit Target relative to my Buying Power: 42% Max loss with my risk management: ~$250 Req. Buy Power: $1050 (max loss without management at expiry, no way to let this happen!) Tasty IVR: 92 (ultra high) Expiry: 45 days Buy 1 SAGE Jun18' 35 Put Sell 1 SAGE Jun18' 40 Put Sell 1 SAGE Jun18' 90 Call Buy 1 SAGE Jun18' 105 Call IRON CONDOR for 4.83cr with negative -8.3 delta, because IVR is very high and I'm bearish. Stop/my risk management : Closing immediately if daily candle is closing ABOVE $90, max loss in my calculations in this case could be 250$. Probability of loss in this way: ~20% . Take profit strategy: 60% of max.profit in this case with auto sell order at 1.69db. Probability of profit this way: ~80%. Of course I'll not wait until expiry in any case! If you liked this article, check my other ideas. Anyway: HIT THE LIKE BUTTON BELOW , and for fresh option ideas FOLLOW ME( @mrAnonymCrypto ) on tradingview !
NASDAQ:SAGE
by TanukiTrade
Complacent VIX and Credit Spreads Description: This weekly chart shows the long term correlation between the VIX (in orange) to the corporate bond yield spreads. The light blue line shows the BAML investment grade bond index yields a spread of 3.9% above the 10 year treasury. The white line shows the yield spread between investment grade BBB bonds and BB speculative grade. Widening credit spreads indicate growing concern about the ability of corporate borrowers to service their debt. Commentary: Are the market bulls feeling some smug satisfaction at this point? Traders and analysts often describe this current market as complacent. VIX is back below the teens, and SPX is currently pushing back into all time highs. Just a few months ago the index was valued 20% lower. What an epic rally in just a few months time! The recent volatility over the past months also demonstrates the uncertainty underlying the market valuation. No new meaningful highs on the SPX have been made in almost 220 days. The index is only a meager 2% above the highs from 450 days ago. Investors need to carefully weigh the risk to reward before putting fresh capital to work at the current level.
M
by dime
2
'Set It And Forget It' Trade In XLBXLB (Materials ETF) has been consolidating for weeks and looks like it's getting ready to make a move higher. With Squeezes on both the Weekly and Daily Chart this looks like a 'set it and forget it' type trade: In a perfect world, I'll be looking for a pullback tomorrow where I can pick up the 58/57 Put Credit Spread: Put Credit Spread Sell 58 Jan Monthly Put Buy 57 Jan Monthly Put At the current price, you can nearly get a 1x1 spread is what I like doing. In this case (once again at the current closing price) risking $51 to make $49/contract. This is a trade I want to be able to put on and not have to worry about too much. Ideally, the trade will be near max profit far before the contracts expire. If you'd prefer to play an underlying, you can also trade DWDP which makes up 22% of the ETF. It too has a Weekly Squeeze setting up and its chart looks nearly identical to XLB: Playing the ETF is just an easy way to play to movement of the entire sector which as a whole looks bullish. With the ETF you're less susceptible to things like news based moves that can affect an individual stock without affecting the entire sector.
AMEX:XLBLong
by TheCryptosaurusRex
SPY -- LOOK TO SELL SHORT CALL VERTICALS ON POST-PREZ DAY OPENWith the upmove experienced in the broader markets on Friday, coupled with S&P futures moving 30 handles higher in low volume, U.S. market holiday conditions, look to sell on strength on Tuesday NY open via SPY, QQQ, IWM, and/or DIA short call credit spreads. I have a wide variety of index ETF setups on at various expirations, but my primary focus will be on adding call side units in QQQ and SPY, where I put on March 18th short put credit spreads on the weakness experienced on the 11th and 12th. With the short put sides, I've been legging into 3 or 4 strike-wide spreads with the short put at the 84% probability out-of-the-money strike; on the call side, I've been legging into similar width spreads with the short call at the edge of the expected move for the expiration, which is generally around the 75% probability out-of-the-money strike (due to vol skew on the call side). Of course, I don't know exactly what the 75% prob OTM short call will be at NY open or how much additional movement S&P and/or Nasdaq futures will occur overnight. As of right now, it's looking like a comparatively calm Asian session: /ES is up 6 points, but oil appears to be somewhat frisky to the upside, catching a speculative bid on various OPEC/oil producing nation talk rumors, and gold is giving back some of its gains with a retreat back below 1200.
FX:SPX500Short
by NaughtyPines
2
PLAYING GOLD -- AREAS OF STRENGTH/WEAKNESS TO WATCHAs with playing the underlying directly, sometimes it pays to watch levels in a given underlying for options setups as well and to abide by the whole trading adage: "Sell on strength; buy on weakness." In this particular case, I'm looking to sell short call vertical credit spreads on strength and sell short put vertical credit spreads on weakness and am keeping an eye on two areas: the "strength" area around 1190 and the weakness area around 1050 in XAUUSD to setup up credit spreads in GLD or in one of the other cheaper XAUUSD proxies -- GDXJ or GDX. (Although there is some argument to be made that a valid strength area would also be around 1160). In comparison and contrast to trading the underlying directly, however, I'm not necessarily looking for price, for example, to strike 1190 to sell a short call credit spread. Rather, I'm looking for XAUUSD to express sufficient strength such that I can sell a short call vertical for a reasonable credit with strikes above that strength area -- naturally, the more strikes the better such that I either (a) have a reasonable shot at the spread expiring worthless; or (b) getting me out of the spread at 50% max profit at some point prior to expiration. In the "short term," XAUUSD looks to be of a consolidative mind around that late July "dump zone" around 1100 and is expressing some difficulty making its way past 1100 to the upside or falling apart in tatters back toward 1050. But my hunch is that I'm going to entering short put credit spreads below that 1050 area before short call credit spreads above 1190 (or 1160 if it turns out that is a longer-term area of resistance than initially anticipated).
FX:XAUUSD
by NaughtyPines