Best Option Spread Strategy

Quote from thinkplus:

No affiliation with TOS whatsoever. or for that matter, not with any other trading firm, or a person.

Good observation, and thanks for asking. Helps me steer clear of allegations for the recommendations/sites I post.

I am an avid reader, and internet has opened up a window of opportunity. So, if I come across something good, just try to share it.
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Welcome aboard.
 
Quote from Maverickz:

Even if you were planning on Selling the April IC, a DBL still makes more sense. You short the Aprils just like you planned but you buy the May's instead of April's. Just due to time decay when it comes time to exit the trade the shorts you have to buy back will get cheaper faster than the longs you have to sell. And you still have the option to roll into a May IC if it still makes sense.
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But if the underlying moves heavily against you, making one of the leg DITM. Your loss will be greater than a normal same month IC due to the other leg.
 
Quote from Maverickz:

Even if you were planning on Selling the April IC, a DBL still makes more sense. You short the Aprils just like you planned but you buy the May's instead of April's. Just due to time decay when it comes time to exit the trade the shorts you have to buy back will get cheaper faster than the longs you have to sell. And you still have the option to roll into a May IC if it still makes sense.
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OK, I've been giving this a try. It quickly becomes obvious what the main issue with this approach is - the margin requirements can be significantly higher - meaning that, in the end, your performance is lower in terms of RoC. I'll keep working on it though, maybe there's a different angle I can use.
 
A long DBL will make sense when the IV is low. When the total vega for the spread is positive. Vega for longer term option (the one bought) will have higher vega which will help if volatility increases.
 
Quote from quazimofo:

Here's a very close to free OOTM Call Condor on AAPL for MAY'08.

This one cost less than $100 per basket and could return as much as $950. In this case, I'm fairly confident that the UL *will* cross the peak ($175), I just hope it does so just before the expiry.
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Hello Quazimofo. What strikes were you buying/selling in your example? Thx.
 
Quote from maxreturn:

Hello Quazimofo. What strikes were you buying/selling in your example? Thx.
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Long $160
Short $170
Short $180
Long $190

Did you look at the image that was attached to the message you quoted?
 
Quote from quazimofo:

Long $160
Short $170
Short $180
Long $190

Did you look at the image that was attached to the message you quoted?
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Also, the real trick here, is to leg-into the position using current changes in spot and volatility as opportunities to buy or sell the calls so that there is as little of a net-debit as possible. Obviously, you want to buy your longs on low IV and sell the shorts on high IV. On a good day, you could get yourself into a net credit, call condor - which is essentially a better-than-free opportunity for even more profit later.
 
Quote from quazimofo:

Also, the real trick here, is to leg-into the position using current changes in spot and volatility as opportunities to buy or sell the calls so that there is as little of a net-debit as possible. Obviously, you want to buy your longs on low IV and sell the shorts on high IV. On a good day, you could get yourself into a net credit, call condor - which is essentially a better-than-free opportunity for even more profit later.
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Thanks quazimofo. Yes, I did view the jpg but I couldn't figure out how you got such a favorable risk:reward on a condor. Now I understand. Over what time frame would it have been possible to leg into this? I'm assuming several days?
 
Quote from maxreturn:

Thanks quazimofo. Yes, I did view the jpg but I couldn't figure out how you got such a favorable risk:reward on a condor. Now I understand. Over what time frame would it have been possible to leg into this? I'm assuming several days?
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Yes, this sort of trade can be legged into in a single day, but yes, it can take 1-2 more days.

In fact, sometimes, when the spot price drops lower than it should, I'll buy the longs just in case I can get the shorts later -- even if I don't the longs will appreciate quickly when the spot returns to normal. Obviously, this is speculation, but I think its pretty fair to say that all of in this forum engage in speculation anyway!
 
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