I've been sprinkling in some credit spreads to my wheeling, and have done pretty well. I've been doing weekly call credit spreads with Carnival and have had no losers. But maybe I flew too close to the sun last week when it spiked on Friday (expiration day) blowing past both my strikes in 15 minutes before I could react to my alarms I set up.
For managing them, basically I've kind of leaned towards letting them expire for full profit (I'd have to check if I ever closed any early). Thursday at close, things looked good and I was on target to have it expire worthless for full profit.
I'm curious what other folks do to manage credit spreads? I'm still up on my CCL trading in the long run, so it didn't hurt me terribly, but it got me thinking about management. Do people close at 50-60% profit like many do in the wheel? Close early on expiration dates even though it looks like it'll expire worthless? If so… some of these seem pretty difficult to close with prices at 0.01 or 0.00. When I looked at closing early to minimize losses, it seemed like it was more or at the full loss if I let them both expire ITM. Maybe I was misreading it (multitasking at work).
Thanks for any suggestions.
Suggestions on managing credit spreads?
byu/Hextall2727 inoptions
Posted by Hextall2727
6 Comments
It sounds like you are trying to have the perfect record. It doesn’t exist in trading: you need to accept that once in a while you will be slap in the face.
Yeah, sometime it’s hard to close those long leg in the credit spread if the price of the underlying is between the long and the short. I usually walk from the mid of the net debit to get it eventually fill. As to profit taking, if the spread is shorter dated, I’ll take profit around 50%, but if it’s long dated then I’ll try to target 80%. I sell them depending on market condition and expiry often depends on economic news.
Personally, I like to employ minimal management for credit spreads. I will typically just set a GTC order to close the trade at my desired profit target (often around 50% of the credit collected, but it depends on how much credit I brought in)
Risk management should be done on trade entry through proper sizing. You should be able to hold through max loss. Otherwise, you’re probably trading too big
And of course, always close your spreads before expiration
My personal credit spread rules are to close at 50% profit (set a GTC order and leave it), or to leave the trade at a loss of 2x credit received.
In General when I did spreads I’d set them up as ~45 DTE, then setup GTC orders to close them out at 50% max profit. These would often close out within a week. The ‘OptionsPlay’ guys would tell to always close them at 21 DTE no matter what; because risk of assignment is greater within that time period. And I do remember getting assigned on a Deep ITM PUT that still had a couple weeks left, so there is risk.
And if you’re way OTM, how much cash are you really saving by holding on?
At first credit spreads felt like easy money but a string of losers changed my tune so I don’t really take them anymore.
I’d ask why are you trading directionally with a credit spread? You could make more with a credit spread on both sides