Trefoil,
your observations about IV are interesting, but I must admit that the IV effects are fairly complex with this kind of system. As you can easily see, there are a least 6 options involved-- 3 on each side and often 8 if the "inside options" are spreads, too (frankly, it often leads to a few more because I usually do these things in stages, keeping margin available to adjust, etc.). The volatility effects are very dependant on the exact positioning of the strikes as well as the ratios involved which vary. The short answer is that often things are usually a bit of a wash in the end, but in the short term, if volatility rises, the further OTM short spreads tend to raise in value somewhat more, which lowers the portfolio value.
The difference between high and low IV, assuming things are static is not that significant. The market pricing of IV is usually decently reflective of general market conditions. When IV is high, usually you need to stay a little further away from the current index value, and when it is lower, you can come in a bit closer, but I usually try to stay a safe distance away anyway. Overall, I prefer lower a bit more because it means less adjustment, and when it is quieter it's easier just to watch, wait and then collect each month. It doesn't bother me if my "inside" calls/ puts expire worthless.
It also means that an unexpected sharp sudden movement, especially close to expiry will probably cross your "inside" calls or puts and add value. This last week was very interesting for me because Tuesday was a nasty little decline, which made me concerned that the 1170's were going to go down the tube worthless. Fortunately, Thursday was a strong upday, and they regained their value. I really should have ditched the 1195/1200's on Tuesday!!
your observations about IV are interesting, but I must admit that the IV effects are fairly complex with this kind of system. As you can easily see, there are a least 6 options involved-- 3 on each side and often 8 if the "inside options" are spreads, too (frankly, it often leads to a few more because I usually do these things in stages, keeping margin available to adjust, etc.). The volatility effects are very dependant on the exact positioning of the strikes as well as the ratios involved which vary. The short answer is that often things are usually a bit of a wash in the end, but in the short term, if volatility rises, the further OTM short spreads tend to raise in value somewhat more, which lowers the portfolio value.
The difference between high and low IV, assuming things are static is not that significant. The market pricing of IV is usually decently reflective of general market conditions. When IV is high, usually you need to stay a little further away from the current index value, and when it is lower, you can come in a bit closer, but I usually try to stay a safe distance away anyway. Overall, I prefer lower a bit more because it means less adjustment, and when it is quieter it's easier just to watch, wait and then collect each month. It doesn't bother me if my "inside" calls/ puts expire worthless.
It also means that an unexpected sharp sudden movement, especially close to expiry will probably cross your "inside" calls or puts and add value. This last week was very interesting for me because Tuesday was a nasty little decline, which made me concerned that the 1170's were going to go down the tube worthless. Fortunately, Thursday was a strong upday, and they regained their value. I really should have ditched the 1195/1200's on Tuesday!!
)