r/thetagang
Gaining experience. Widening spreads then IC. Seems too simple. What am I missing?
Author explores rolling put credit spreads and converting to iron condors on XSP to manage risk during market drops and VIX spikes.
I’m messing with play money to get experience on xsp. What I’m doing so far seems too easy so I feel like I’m missing something.
Open a 30 delta 740 put credit spread on xsp $3 wide. 45DTE. That started to touch when the market dropped. Had about 30 days left so decided to roll it down. Especially with vix spiking. So moved it down and out to 700 $5 wide for a small credit something like 50DTE.
Playing around with the numbers I can do it twice more with $2 spread increases before getting to my max loss. If that happens I’m looking at this iron condor conversion tactic to halve the loss. However, as price recovers I’m thinking about tucking the long strike back in as vix drops.
I get the feeling I’ve missed something really obvious. I’m assuming it’s that my usage of capital is poor since I’m saving a lot to bail myself out. But I’d appreciate input into the idea.
I think the obvious thing might just be path dependency. This probably works fine in chop / slow recoveries, but gets uglier if price keeps trending while vol expands
Rolling feels manageable until the market stops cooperating
Genuinely curious how this would’ve behaved in a persistent selloff instead of a quick recovery.
So I’m guessing based on the replies that a robot wrote that out? Still very interesting but I was keen to get the voice of experience rather than a dice roll on the next half word prediction.
You will get a lot of insight about rolling pcs here
datadrivenoptions.com
Which model are you using here? A little too sycophantic for my taste. If I had to guess, one of the newer Claude models?
Simply put, much of that cautionary tale is mitigated by the profit taken. So, it's not about piling on risk without reward when worked as a campaign. In a chop market at 45dte, XSP, SPX, all the others are going to drop into range at least a couple times. And although closing for the profit might be the more conservative of choices, sometimes working the position is the more profitable venture.
I think the real problem is the .-30 delta.
If you're going to be doing that sort of thing -- "forcing" a credit on roll by widening the spread, you need to keep in mind that you're increasing the BP effect of the spread and therefore its max loss.
For example, if you're going from a 3-wide for which you received 1.00 on initial fill (i.e., baking in a 2.00 max loss), but widening by 2 and receiving a .50 credit on roll, you've increased the spread to a 5-wide for which you've received 1.50 from inception to date, and therefore increased your max loss to 3.50 from 2.00.
This is why when you do this, you might want to consider selling a call side against of similar width with the short call leg at the same delta as the short put leg. You'll get this BP free, receive a credit, and reduce the max loss of the new, wider winged setup. (Alternatively, you can sell two spreads that are half the width of the put side, with the short call leg at half the delta of the short put leg, as shown in the example below. This is to accommodate skew in SPY and reduce the likelihood of being call side whipped).
The alternative (which I generally prefer) is to roll the 3-wide down and out for a debit that is entirely financed by selling a call side against for a credit that exceeds the cost of the debit paid for the roll down. This way, you're not going backwards on total credits received to date for the setup, and you're not increasing max loss by widening it.
Here is one I did in SPY today just because it was pissing me off a little bit by dancing around my short put strike, and I wasn't going to roll the existing call side down with only 14 days to go:
Roll: June 18th 726/736 short put vertical to July 31st 715/725 for a .95 debit.
Sold against: 2 x June 31st 771/776 short call vertical for 2 x 1.06 or a 2.12 credit.
By doing this, I've actually decreased my max loss in the setup by 2.12 - .95 or 1.17.
Surely that’s just an iron condor though?
Yes, an IC. Not everyone wants (or quite knows how) to work these.
There is skew in SPY. Calls of a given delta are closer to ATM than similarly delta'd puts. Doing a double-half (half as wide but twice as many contracts with the short leg at half the delta of the put leg) makes for a more balanced setup with short call about the same distance away from current price as put side (is the reason why I do that). Naturally, not every instrument is skewed that way. (See, e.g., GLD, which is skewed the other way -- equally delta'd puts closer to ATM than equally delta'd calls).
Cool. If I’m reading it correctly it seems you aren’t doing the old, halve the loss lock in that I’ve seen so much.
I don't quite understand what you're saying seems too easy It doesn't even sound like you've completed a trade cycle yet.
When you have like 10 trades under your belt.... completed. Then let us know if you think it's too easy and take a look at how much money you're actually making. Cuz it sounds like you haven't made any $ yet.
On the one hand you’re correct. Wheeling Ford wasn’t really worth the squeeze. Although I might go back to it.
So yes, this is my first one on xsp. I got some lovely credit spreads on klarna based on fundamentals. But those weren’t really theta trades.
I’m not keen to just go straight in and lose a few grand. I don’t mean to boast when I say I can afford to lose it. But, the fact I don’t want to lose it doing something silly is why I can afford to lose it. Hopefully that makes sense.
I have a shit load of CFD experience. But I want stock exposure and the ability to do theta plays on indexes. In my head at least my strat seems fine. Roll down and out into major support areas. But it seems too fine. My main thought is pennies and steamrollers. But a lot of theta plays have a sub optimal ratio.
Ford definitely has terrible premium
Yeah but this comment doesn't jive with the tone of your original post. I don't get what you're aiming at... Do you think it's too easy or do you think selling premium is not worth it? Maybe I don't understand what you meant by too easy.
But I don't get what you're complaint... or question....is.
As in it seems like I’m missing something. Apart from the obvious black swan of price smashing through 3 major support levels. Plausible but it seems to simple.
What messes people up with condors is max loss seems unlikely to happen, but like any put or call credit spread over the past 2 months, you could have easily been blown out continuously depending on entry points.
Try it with real money for three months and let's us know
Define real money. I’m currently doing it with 3 grand.
Enough so you have to keep checking but not so much that you can't recover in a week or a month
That's one way to gauge your sizing
So are you using Claude or Gemini?
Brotherman, no one reading beyond the first couple sentences after we realize we're reading AI output.
If you actually want to communicate with other humans, use your own thoughts and your own words.
it feels too easy because you havent completed a full cycle through a real drawdown yet. rolling down and out works right up until price keeps going and you run out of room, then the iron condor conversion caps the loss but you have also locked in a much worse expected value than the original credit suggested. the math on these is fine, its the path that gets you. backtest the exact roll rules across the last two years of moves and youll see how often the never happens max loss actually shows up.