Quote from JohnGreen:
rocky racoon, thanks for explaining the double calendar and diagonal so clearly. (By the way, all the "named strategies" are found easily on the web and explained with graphs to boot.)
I do think in such a low IV environment, the double diagonal or double calendar strategies look more attractive. The primary difference between them is the potential margin requirement for the double diagonal. If the sold strike (which is in the nearer month) is closer to the money than the bought strike, a margin requirement comes into play similar to a credit spread. The significant difference, however, is that as the market moves toward your sold strike, you usually won't be having a significant crisis because your bought strike will be rising in value, too, and sometimes even faster depending on the nature of the movement, and the distance to the strikes.
Double calendars don't require margin so your risk is simply the cost of putting them on.
Now for the hybrid IC concept-- IC's are obviously risky creatures, as I have shown with my hypothetical example. It would therefore seem prudent to mitigate the risk. This means coming up with a couple of hedging strategies to limit the risk of the slow (sometimes) march upward, or the more rare but dramatic market crash.
I don't use balanced IC's and I do have hedges in place (which can, but don't always reduce the potential profit). I've done this for a while, and I haven't had to close my IC for this month. It is still doing fine, with a week to go, and I'm planning on starting my move to October early next week.
I'll let folks give that some thought and offer ideas.
