You don't need an unusual skew in the front month. You're simply looking to sell enough premium in the front month to compensate for the additional long positions in the back month. And yes, depending on tenor and term vol structure, you'll have to vary the relative position of your back month otm long puts (and/or calls).Quote from Luciferius:
Well, but in order to short enough premium in the atm fm flys, you would either need an inverted vertical IV skew (never seen that happen) and/or farther otm long strikes in the bm backratio (then the risk gaps get quite wide and the probability of profit goes rapidly down).
Still waiting for a realistic position simulation on real numbers. Concepts are cool and stuff, but I just don't see it in this position.
Thanks.
Luci
This is not a position that you enter all at once. This is a position that you work into over time. If you have a relatively modest account, then skip the additional long options. However, if you're trading in size, then those additional long puts allow you to weather almost any disaster. Like all aggregated positions, you will have to do some management to keep your risk measures acceptable over time. And you'll need to become knowledgeable about the proper circumstances to short or add premium, but that's no different than with trading generally. No mystery or magic here.