Quote from rdemyan:
Ryan:
You've been doing the diagonals now for a number of months in lieu of or along with credit spreads. I believe that before you started with the diagonals, you pretty much only did vertical spreads.
As you look back at your trades, would you mind providing your honest assessment of how successful the diagonals have been. From your posts through these months, I seem to get the impression that it hasn't been that successful. Maybe because of the low IV environment?
Thanks.
Quick update on my Feb/March diagonals. I spoke a little too soon the other day, big comeback in about 2 days (basically at breakeven right now, looking at some adjustments as I think I got into my positions too early, see below).
My results have been a little mixed. I have had a few months where I was looking at a good profit and it evaporated right at expiration (move in underlying or vol collapse or both). It was Oct or Nov (don't have my info in front of me right now) where I did manage a good return and Dec wasn't too bad either. Other months the profit has been minimal. I am still learning about good entry times. I think for Feb/Mar I entered too early. There seems to be better entry opportunities around 20-30 days to expiration (if volatility cooperates). No definate conclusions. I do like the strategy as it allows for flexibility if the underlying gets close to or hits the short strike and still take a profit. I get to stretch my brain a bit sorting through the different adjustments I can make. I don't like the margin required (who does?). Getting a decent fill is really hard, this is a big drawback to the strategy.
I'm still feeling things out but it seems to be a decent strategy, just more variables than a straight vertical. One of the attractions of this strategy over a FOTM credit spread is the help volatility will give you if/when we get a quick, steep decline in the market. With FOTM you are pretty much screwed, with a diagonal not as much (depending on several factors). I have traded these in a similar style to Sailing (he may have changed his strategy now that he is working with Mav). I do like Mark's method too, just haven't tried that one yet. Mark seems to use a lot more margin for his DD but he doesn't have the "dip" in the P/L profile I have with mine. It is a vega vs. theta debate there that has been argued both ways in this thread before.
I think my analysis above is about as clear as mud. Basically I do like the diagonals and will continue doing them. I'm also looking to get back into CTM verticals again on SPX and RUT. I haven't traded CTM lately, looked at some but didn't place any real money at risk (darn low volatility
). I spent the last few months studying futures (one of my new years resolutions last year that I waited until November to get started on). I went to a TOS class that talked about using futures to hedge directional risk for options positions, it was pretty interesting and might add that in at some point too. Most people on this board (me included) look to add different spreads for hedges. The problem I have experienced with that is getting good fills. With futures you don't have that problem.
Take my rambling post for what it is worth. I'll keep posting my positions, good and bad so we can all learn together.
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