Hi Dan,
Thanks for the article, please post in this thread whenever you have such informative contents. It will help many of us.
One thing i just want to mention here, in Indian market i think we have only Index(NIFTY) options which are very liquid for options traders. If you pick any other stock, the ask and bid price are not very healthy and also not very liquid.
In index options the strike prices are 100 points apart..this is really not very encouraging for Credit spread. If we play with credit spread with far OTM, the difference between the two strike prices are not good enough. Yes, we have the news that NSE will introduce the strikes of 50 points which is yet to come..let us see how it helps.
Also I'm not very comfortable with the adjustment we do in Credit spread. In case of trend goes against me and once the short leg is ITM, if we go with adjusting it by buying deep ITM option, it will become another overhead to manage it. It is difficult to keep a SL for it because within mins it can go to losses. So there is only one choice i believe is to cover with losses.
At the same time if we are playing in Debit spread, I bet on ATM and OTM. If market goes against me, I have two choices. one cover the long leg and wait for the OTM to recover some loss(This is the best because you have time in your favor)..or cover the short leg with small profit and short the ITM option to make it a Credit spread (again i dont like this - because short selling an ITM option is very risky business)
So my way of trading is have a SL level of the underlying in mind before enter the trade and at that point don't hesitate to exit or to adjust the spread.
Thanks for the article, please post in this thread whenever you have such informative contents. It will help many of us.
One thing i just want to mention here, in Indian market i think we have only Index(NIFTY) options which are very liquid for options traders. If you pick any other stock, the ask and bid price are not very healthy and also not very liquid.
In index options the strike prices are 100 points apart..this is really not very encouraging for Credit spread. If we play with credit spread with far OTM, the difference between the two strike prices are not good enough. Yes, we have the news that NSE will introduce the strikes of 50 points which is yet to come..let us see how it helps.
Also I'm not very comfortable with the adjustment we do in Credit spread. In case of trend goes against me and once the short leg is ITM, if we go with adjusting it by buying deep ITM option, it will become another overhead to manage it. It is difficult to keep a SL for it because within mins it can go to losses. So there is only one choice i believe is to cover with losses.
At the same time if we are playing in Debit spread, I bet on ATM and OTM. If market goes against me, I have two choices. one cover the long leg and wait for the OTM to recover some loss(This is the best because you have time in your favor)..or cover the short leg with small profit and short the ITM option to make it a Credit spread (again i dont like this - because short selling an ITM option is very risky business)
So my way of trading is have a SL level of the underlying in mind before enter the trade and at that point don't hesitate to exit or to adjust the spread.