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You're helping me formulate my thoughts more clearly. Thanks. Before I answer your question, I should point out that I tend to think defensively -- "what happens if the trade goes against my directional bias?", assuming I have one. If I have a bullish bias and want to put on a VERTICAL spread...

Sorry, it's been a long day -- is that what you meant to say about short vega & bear spreads?

Thank you. This is the type of discussion I was hoping to spark. I have gotten myself wrapped around the axle on "long vega" trying to imagine why one might want this characteristic in a bear spread. I am conditioned to think of volatility dropping as the underlying rises, so long vega could...

I am more than aware of your stance on the matter. You don't need to keep repeating yourself. Anyone else?

Thanks, but your answers are wholly unrelated to my questions. Assume that I have a directional bias on the underlying (or perhaps no directional bias), and that I have selected my short strike(s) using whatever means I deem appropriate. I would like to discuss what factors might go into the...

I am trying to learn as much as I can about the setup and dynamics of diagonal spreads, either expressed as single directional trades or direction-independent trades (i.e., double diagonals). Other than pricing issues related to the bid/ask spread, what might influence one's decision to use...

Unfortunately, I don't know the model being used by oX to calculate fair value. I might try to recreate your calc and compare. Thanks.

Looking at a bear call spread with 1 week to expiry, where both options are just OTM. Difference in the strikes is $2.50, and the midpoint of the B/A spread is $1.75 credit. Using the optionsXpress "pricer", I estimate the fair value of the spread is $1.51, so in either case the risk/reward is...

PKW rises in January as much as it falls. Garbage analysis.

So consider those instruments which benefit directly from a spike in oil but aren't directly invested in futures. Like, XOM. Or FCX (half kidding, but it shot up this week on a moderate bump in spot).

Jesus, did you change your name AGAIN?

Are you actually disputing the idea that the value of your spread AT EXPIRY is what the typical P/L diagram shows? What do you mean, "Real life: This never, ever happens." Sure it happens. It happens to the penny with every option combo constructed of same-expiry options. Prior to expiry...

Pick an exit strategy and it will destroy your winning percentage. Now you're faced with the decision of whether or not you want to continue trading a lower-percentage strategy with reduced drawdowns. Voila, the problem all traders encounter at some point.

Well, the bid ask can certainly represent a drag on performance. I don't know that I would say ONLY trade spreads, but hitting close to the midpoint seems more probable with spreads.

I fiddled around with the ratio of $SKEW to $VIX, and it looks like it is somewhat predictive. Using an adaptive moving average (default Kaufman parameters) it appears that the crossovers of the ratio with the moving average do a decent job of keeping one out of major market drops. I seriously...

The bid/ask doesn't enter into it. All that matters is the strike price + the price you paid.

You're looking for a recipe, and nobody is gonna give you that. I'm pretty sure we've all seen enough trades blow out the bottom 2STDV Bollinger band and never look back to question the validity of trying to trade the touch. Backtest it yourself if you really want to know.

I think you need to be careful with statements like this. At the risk of sounding Clinton-esque, you need to define "right". I might be trading a bull spread strategy where I can sustain a 5% drop in the underlying and still make money. One could argue that this trade may or may not make...

Huh? There may be plenty of risk, but to say there is no reward is lunacy. What debit spread reaches maximum profit with the underlying at the short strike except at expiry? It seems the OP wants to keep compiling risk by adding more spreads, which would seem to me to be less than ideal...

Have you studied or traded the same strategy you are hinting at with ATM/OTM options?