Obviously you don't have to worry about earnings when trading QQQ and IWM. And if you did it on stocks before earnings, you just want to decide if you think the change in front/back month skews would be greater than the decrease in IV of the back month. Capturing this skew in the AM after earnings can sometimes easily outweigh the loss from back month IV drop.
It really just comes down to capital requirements. If your short contract is exercised and you have the capital, great, you are synthetically the same but now you have captured the remaining time from the exercised contract. If, on the other hand, you don't want to have to think about capital being tied up and there isn't a big skew advantage with ITM, just go OTM on both sides. I find that when you have a lot of these on at once it can just make things a bit easier.
Start with the pennypilotlist if you plan to use this strategy on stocks. And watch out for the Back-2-Back low debit calendars or commissions will run away with your profit. Another trick, if you are worried about IV, is to place a butterfly in the middle before the EA. This will push the middle of your risk graph out in your favor and reduce IV risk.
It really just comes down to capital requirements. If your short contract is exercised and you have the capital, great, you are synthetically the same but now you have captured the remaining time from the exercised contract. If, on the other hand, you don't want to have to think about capital being tied up and there isn't a big skew advantage with ITM, just go OTM on both sides. I find that when you have a lot of these on at once it can just make things a bit easier.
Start with the pennypilotlist if you plan to use this strategy on stocks. And watch out for the Back-2-Back low debit calendars or commissions will run away with your profit. Another trick, if you are worried about IV, is to place a butterfly in the middle before the EA. This will push the middle of your risk graph out in your favor and reduce IV risk.
