I've been trading CCs/CSPs for a little over a year. Just started to add in spreads and wanted to understand the ideal strategy for closing them. From what I read in past posts, to get maximum return, you need the short leg to be deeper ITM – so delta will be closer to 1. That makes sense to me, the long leg will have a delta near 1 earlier, so as the underlying price moves in my direction, that leg should gain value faster than the short leg.
Is there anything I am missing here? Are there any specifics you look for when timing the close?
Posted by radargunbullets
1 Comment
I sell 0dte OTM credit spreads. I look for the market direction, get behind it expecting it not to turn back before I get out. In this way theta is my friend and sideways movement is to my advantage. Getting out at 20% of the credit is a good space to be in, but if the market is moving massively in your favor I hold out for more. Today the market sold off hard and my call credit spread on SPX is at 90%.
A put debit spread is functionally the same as a call credit spread and vice versa, and what you pay for the debit is nearly the same as what you’ll put up as collateral for the credit side. If you can afford one you can afford the other.
Either way, I’d look at a percentage of the max profit as the exit point. Get out when you’re up (or down) 20% or so.