opened a ODTE 6480/6490 call credit spread.
today's spike blew through my long leg and closed for a loss.
looked to roll up and out but vol was much higher today so it negated any theta gains for later this week.
how would you have defended in this instance?
Posted by mazrub
5 Comments
You can’t. Not sure when you opened, but I’d have closed on that early morning dip, if opened before 10am. The move at 12:30 was too violent to defend.
Yes that 12:30 move was wicked fast
You can’t “defend” a trade. You can add more/different risk with offsetting delta while adding more greek-of-your-choice. So if you’re now way short delta, you could sell put spreads or buy calls or any other +ve delta spread.
At least it was only 10 wide..
is that your normal spread? I normally do 5.
Thats the problem with credit spreads – they come with handcuffs. The Youtube ‘furus’ dont tell you that. They emphasise the ‘defined risk’ aspect – but defined risk doesnt mean No Risk. And when you combine credit spreads with 0DTE, well thats a deadly combo. The path to options success is litered with the carcasses of newbie traders who thought theyd found a winning formula to financial freedom.
To answer your question, its very hard to manage a 0Dte CS thats gone wrong cos gamma is so strong. You have no or little opportunity to roll up/down for the same day, and rolling out to the next day will result in you paying a debit AND risk the possibility that your spread will still be ITM.
One school if thought is to sell a put spread (if your call spread is ITM) – this gives you some credit to counter the loss on the call spread. But no free lunch cos the stock reverse and now threaten your put spread.
With 0DTE, one loss can equal 10 wins.
Recommendation – increase your DTEs.