Risk Management For Premium Collection on Spreads


#1

Ok, i understand that if im doing an ITM spread to collect premium at expiry, if the market stays flat, go in my favor, ect i make money. Now lets say im doing an ITM spread and i dont hold it to expiry because its going against me, would my risk be from where i got into the spread to where i got out no matter what my P/L says.

Example: im buying an ITM spread (MAX RISK - $150) (MAX PROFIT - $37) now the market goes down and im losing money, my Profit/Loss says -$21. If i close this trade, will i lose the -$21 or will i only lose the difference from where i got in and now getting out no matter what the P/L says? Like i bought at 1.3280 and the market is trading at 1.3295, now im still in-the-money but my P/L says im down -$21, if i close do i lose the -$21 or will i only lose the distance from 1.3280 - 1.3295 which is 15pts/$15?


#2

You can’t have a max risk of 150 and a max profit of 37 as that would be a 187 wide spread.

Your profit and loss like in all trading is the difference between where you enter and exit the instrument/contract/derivative your trading.

A spread is a derivative, basically like a call or put option bit wo all the complexities.

It’s value is derived from something else.

But your profit and loss is going to be the difference between where you enter and exit (or settlement) the spread itself with the max profit being the most and the max loss being the most you could lose.

Your collecting premium which is time or implied volatility value. Just like if your paying it it does not suddenly become worthless the moment you enter if your collecting it you don’t suddenly get it. Time has to pass or implied volatility has to drop for you to collect it.

The distance of the underlying is not the p l calculator just your instruments entry less exit

You mentioned itm thus is not the same as a binary at all so totally separate any assumptions between the two. Itm simply means the underlying is between the floor and ceiling on a spread.

If it dropped 15 ticks and your down 21 that extra 6 amount is most likely the bid offer spread it has nothing to do with premium collection

Sorry long answer just trying to touch on anything I see in your question that may help…


#3

With the APEX systems, do you find yourself using mostly ITM spreads? one’s that are roughly 50/50 on profit and loss calculator (scanner)?


#4

I look at where the apex is forming within the expected range of movement and magent prices to determine the best spread. (advantage - no stop loss).

or hedge off the future/forex contract with a spread or hedge off the master spread with a low risk spread

For simplicity daily spread right near where the market is trading (ie low proximity)