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Actually hedging a credit spread is pretty straightforward. Say you sold a put credit spread with a delta was 0.10. You're bullish to neutral on the underlying, as reflected in the positive delta. Instead of the underlying cooperating and moving up or staying about the same, it starts...

Too bad they had the chance to procreate and pass on their bad genes.

I think the "Fixed volatility per expiration date" calculation for PoT might be just statistical/historical volatility. I also observed several instances where the delta was a little far from expected as compared with PoT. If my theory is correct you'd see more of a difference with puts than...

If you open a ThinkOrSwim paper account you can see the PoT reading alongside the delta on an option chain. My observation has been that the PoT of 20% is approximately a delta of 0.10.

There *is* that possibility of the unlikely event that one day the market gaps down (or up) through both strikes of your spread. In such a scenario, you may not have had the chance to get out at a 20% stop loss leading up to the gap move. This would most likely happen just when you said...

There's no holy grail, every system has risk. Double calendars work but you have to understand the risk involved to do them successfully. Check out Dan Sheridan's free info on this and lots of other good free material. Just google his name.

I'm an engineer too, so I know just what you mean.

In your real money trading which are you using? You'd implied earlier that you wouldn't use all 3 (SPX, NDX, RUT) but focus on just 1. Seems like NDX would be a good choice if you had to choose one due to the availability of weeklies.

I noticed this as well regarding increasing the strikes. Seemed like no matter how wide I made it I still couldn't achieve the % return on margin I wanted. I'll have a look at NDX, but what do you think of RUT?

Howard, A few days ago I entered an April 1215/1210 put credit spread on SPX in my paper account to get a feel for how things play out. I've been looking for opportunities to put on an associated call credit spread to make an IC but nothing has presented itself yet. I've found that the...

The thing I can never get over with these guys is their greed. Once they get their millions, and see the jig is up, why not just disappear with it? Fund a nice little bolt hole somewhere "just in case". Instead they go on and on as if it'll never end.

Wow. Good one.

Probably a bad example since a helmet doesn't reduce your risk on a motorcycle going 30 mph either. :D

Market makers are always trying to stay delta neutral. Who knows what other options are in their holdings?

When you refer to landing, do you mean the location of the short leg of the new credit spread when you roll? Rolling is generally considered one operation where you close one position and open another in one order. If you close a credit spread that hits the 80% profit target but there is no...

Imagine how Britain must have felt as the sun set on the British Empire. The big wheel comes around.

Now, kids.

I understand what you're doing with the PoT since it's more or less a direct reading of the probability that you'll have to act some time during the trade. Delta can be used, but it's not the same direct reading. You'd just have to have rules set up where "if delta <= 0.10, look to enter"...

Hey Howard, I am somewhat familiar with some IC schemes where they use delta for the probability metric. For instance, choosing the short strikes with a delta of 0.10 or less theoretically gives a 90% chance of expiring worthless. Why did you choose PoT instead of delta? If you look up...

OK, gotcha. So if an IC presented itself where both the put and call sides met your independent entry criteria you'd just go in for the whole thing, but that's unusual.