Quote from Sailing:
That's correct.... but what if the panic selling doesn't happen.
On a second note, if you have bullets left over (say a 50% cash reserve) you can place the position during the panic attack.
But we traded the last two years.... there weren't many panic attacks... as the VIX fell to record lows. Placing the diagonal helps to bring in a steady 2-8% a month return while waiting.
Now... if you're a full fledged Maverick Fan.... you'd send the Marines in first.... ie, buy cheap OTM puts and calls when they are cheap... mostly puts. You send them out knowing they will die.... but you wait for the enemy.... (panic selling or huge market run up) and then SELL your OTM back month positions. Now, you may have lots of casualties.. 'Marines', but over the long term... you have a very nice expected return... and roll into next month positions continueously.
Your method waits for the panic... ie, the Puts you buy will be expensive, although you will be selling amore expensive back month Put. Mavericks marines were cheap... now you sell and profit larger... much. The strategy requires the willingness to send the Marines.
There is a mutual fund which trades this way... just buys... cheap OTM options.... month after month... and waits for market moves... it's rated return over the past five years was 26%. What is interesting... is you are 'black swan' event proof.
Studies have shown that the pricing model for options is skewed to positive expectancy 'way FOTM'..... problem is.. most people can't take 6 or 7 or 12 months of losers before hitting the big one. But think of the risk.... it's limited.
(sorry... getting off subject... but it's very interesting as you read about option pricing models.... us math teachers get excited about this stuff)
Back to your question.... you can wait.... but you may be waiting for a while.... so why not take advantage of being 'in' the market and still have the opportunity.
M~
Only using around 20% of available margin.