Quote from acen1975:
you are shorting IV with long calendar
even if the front IV drops more than the back month,let me remind you that the VEGA of the back months options would be still higher,than the front......
and the spread is usually a loser.
back month options have more premium,so vega would be higher,even if IV has a smaller drop in the back month,the vega will crush your long options more ,than your shorts.
this is the first time i have heard that someone is shorting IV with a long calendar......
any position or spread,which is a debit bet,is LONG IV,not short!
correct me ,if i am wrong
Please see attached image, it is a long Vega and long Theta play.
Even you set IV ratio to 3 ( which I think cover 50% of cases ), the combined IVs after ER is still increasing not decreasing.
Also don't confuse Vega with IVs. Vega tells you how much you gain or loss from now on for each % IV change. I only care about if vega is positive or negative but I care more about if total IVs is increasing or losing after ER.
CRB is a long Vega play ( see attached image ) and combined IV is gainging after ER, so what is the problem ? Positive Theta is a bonus with one day passed.
Still confused ? I used to use pencil and paper to calculate, now I use Options Lab.
