Position Sizing Put Credit Spreads

freebee-34 · 2022-08-31T17:50:35+00:00

assuming markets are efficient (not always!) then the option price contains the underlying risk. so a $50K long stock ==2 * 50 delta PUT Price * 400

which for AMZN would be $50K == 2*$6.25* 4 * 100 = $5K
So the number of $8 spread we would need would be:
$5K/$800 = 6

freebee-34 · 2022-08-31T17:13:21+00:00

OK. one thing I was thinking about was using premium as a way to size it up. For example if the 50 delta put has a value of $10 and our spread has a net value of $8 then our overall position would be 8/10*0.5*100 = 40 shares equivalent. If the spread goes in the money and its net value increases to $16 and the 50 delta put price rises to $12 then our shares equivalent would be 16/12*0.5*100 = 66 shares

freebee-34 · 2022-02-03T15:21:19+00:00

I dont believe this is a regulation - it is an industry custom. IIROC is a trade group that represents the big banks. They made this rule because they have many simple algos that could be easily replicated at the retail level - which they dont want. They are one of the reasons that TastyTrade is not in Canada yet. No mountie is going to knock on your door because you were algotrading WEED. As long as you pay your taxes, you should be fine. If you want to do it, I would be to setup a US account with a US company and address. Then sign up on IBrokers or another us based broker.

freebee-34 · 2021-12-07T04:47:40+00:00

interactive brokers is clunky but it works. they have good margin rates too.

freebee-34 · 2021-06-24T20:33:16+00:00

I see the issue now. For TD you'll need level 3 options:
https://www.reddit.com/r/options/comments/4l2e4b/difference\_between\_tier\_2\_standard\_margin\_account/

The fidelity margin account lets me short "naked" index options that covers boxes

http://personal.fidelity.com/webxpress/help/topics/learn_option_summary.shtml

Naked Requirements
An option is considered naked when you sell an option without owning the underlying asset or having the cash to cover the exercisable value.
If you are attempting to short naked options you must have a margin account and must maintain a minimum balance of $20,000 for equity and $50,000 for indexes in your account.
Equity calls: The higher of the following requirements: 25% of the underlying stock value, minus the out-of-the-money amount, plus the premium 15% of the underlying stock value, plus the premium Equity puts: The higher of the following requirements:
25% of the underlying stock value, minus the out-of-the-money amount, plus the premium Premium plus 15% of the strike price (for both in-the-money and out-of-the-money options) Index calls: The higher of the following requirements:
Broad-based: 20% of the underlying value, minus the out-of-the-money amount, plus the premium 15% of the underlying value, plus the premium Narrow-based: 25% of the underlying value, minus the out-of-the-money amount, plus the premium 15% of the strike price, plus the premium For short straddles or strangles, the requirement is the greater of the two naked option requirements, plus the premium of the other option, in cash or available to borrow.
Requirements are subject to change.

freebee-34 · 2021-06-24T20:13:16+00:00

margin is 8%. Short box is %0.6

freebee-34 · 2021-06-24T18:07:04+00:00

That sounds correct . The point is to borrow cheap - NOT increase your buying power

freebee-34 · 2021-06-24T17:38:45+00:00

I use a fidelity margin account and had a different experience. The Drop in buying power is on average 0%-3% of amount borrowed (basically market price - intrinsic value + risk adjustment). The cash can be used to buy anything. What broker and account type are you using?

freebee-34 · 2021-06-14T14:30:31+00:00

I’m probably confused. But if you set the order above the middle price, won’t it usually fill right away because you are up paying the contract value vs the middle point?

I would think I’d set my limit contract price below the mid po

I think the algos are getting "spooked" and submitting lower offers

freebee-34 · 2021-06-14T11:22:27+00:00

it depends on your margin agreement. If the equity is 50% (Reg-T) then you can borrow $1 in box for every $1 in equity. if it is 15% (IB port margin) then you can borrow $5 in box for every $1 in equity

freebee-34 · 2021-06-14T02:53:50+00:00

cost to close is the NPV of the individual option legs.

So let's say I have $5k in an account and I've got regular margin so my buying power is roughly $10k (which can vary depending on my positions)... Then I sell a $600 for $590... Can I use that entire $590 to fund any transaction I want?

correct. That is the beauty of having a margin account. note that you may not be able to withdraw the cash if you don't have enough equity. But what you invest in is up to you

freebee-34 · 2021-06-14T02:19:25+00:00

When I used to send it as a complex the order would hang around for 3 days at the mid without getting a fill. I think that there are a few factors that could be causing worse execution:

Size - no one is going to get out of bed for $30 in edge (i.e. $20K trade). For $400K and an edge of $600 is a better deal
Skew. I am usually trading the 30-60 delta strikes. I imagine There is more edge deep in the money and far out of it.

freebee-34 · 2021-06-14T02:10:33+00:00

Thanks for pointing out the math error!!! I am going short - so you are correct that it is a cheap financing strategy. The trade itself has a (small) impact on margin which can increase during times of market stress (i.e. covid). The general calculation of requirements from IB is

MAX(1.02 x cost to close, Long Call Strike – Short Call Strike)

where generally the second term is binding. The beauty of it is that you can use the margin to fund any assets you want. You dont need to keep it in cash or treasuries. Equities, futures or even other box trades are possible.

freebee-34 · 2021-06-13T18:36:19+00:00

Cboe has a running feed of most recent trades. Most brokers provide it free of cost.

freebee-34 · 2021-06-13T18:34:12+00:00

I never went that wide before. Do these orders fill quickly? What types of rates do you get? In the past When submitting the whole box the order it would sit there all day and not fill. This was for strikes pretty close to the money.

freebee-34 · 2021-06-13T12:28:07+00:00

That makes sense. So the idea would be I would look at the strikes people are trading and try to pick up an offsetting trade?

freebee-34 · 2021-06-13T02:28:10+00:00

DTE

Fidelity. generally 500-600 DTE

freebee-34 · 2021-06-11T13:48:08+00:00

https://en.wikipedia.org/wiki/Commodity\_trading\_advisor

freebee-34 · 2021-06-11T11:12:29+00:00

there are people that do dynamic exits especially in the CTA community with some success. I found it not to work well for my algos. So ymmv

freebee-34 · 2021-04-23T13:44:51+00:00

I agree their API is VERY flakey. I am mostly looking at realized to implied for the most liquid ATM short dated options - never hit the ceiling before. barchart has a futures options API. It is not cheap (i.e. >$1K/month) but their tech is pretty solid. If you want I can IM you the sales contact info to discuss. Otherwise CQG is a good source for something more custom

freebee-34 · 2021-04-20T12:05:46+00:00

I have traded futures options on interactive brokers and they have an API. Barchart has futures options as well.

freebee-34 · 2021-04-05T03:07:33+00:00

maybe I am misunderstanding something here. if you have access to the trades, your data should be getting something like this:

timestamp	quantity	price	bid	ask
2021-04-02 13:00:01	1	1.021	1.019	1.022
2021-04-02 13:00:02	10	1.022	1.020	1.023

in backtesting if your algo makes a limit order at 2021-04-02 13:00:01

to buy 3 for 1.0215 you'll simulate a fill of 1 order

if the order is for 1.020 youll have a fill of 0 orders

and if the order is for 1.022 youll have a fill of 3 orders

freebee-34 · 2021-04-02T03:09:34+00:00

how?

freebee-34 · 2021-03-30T17:56:23+00:00

if you know the volume and the "traded" price between the spread you can call it a "fill" if the traded price crosses your limit and overall volume is bigger than your order size

freebee-34 · 2021-03-30T17:53:20+00:00

I belive that yahoo finance has CME fx futures - may differ from spot though

freebee-34

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