That's why high volume, low bid/ask spreads options are almost the only ones to trade with these strategies.
Vol crush is not an edge. The street knows vols will come in after the event. That hardly increase your odds. Maybe ask IV trader nicely to elaborate on his low risk high prob comment as there is no such thing at face value.
the real issue is how much margin must you put up to make real money once a month before the options you sold expire...please explain this...the real issue.
Would you care to share what would be better than a 1:1 r:r with a IV play, especially after capitualation?
The reverse calendar is treated as a naked short by most brokers; therefore, that strategy has the worst margin requirement. The Reverse Irons are net debit strategies. The shorts are hedged, and thus require a fraction of an otherwise naked position. Most brokers have a margin requirement calculation module to test on a specific set of options. Walt
just sell a put spread. you'll end up with theta and vega working for you (rather than in a reverse cal spread, where time decay works against you). If the volatility crush happens, vega will get you a profit, if nothing happens at least you're benefitting from time decay. You also just have two legs and you'll have minimal margin requirements if you have portfolio margin and a decent broker like IB or TOS.
Hi Walt, Before trying to answer your question, take a look at what probabilities you refer. How are they computed, underlying assumptions, in which "univers"... You then would realize that probabilities mean nothing (see gaps, jumps, crashes...) and the main point is costs and common sens. You would need the all set of eventuality to work with probability, and there is no such a thing available on markets. A 1800 S&P oct call got a probability much smaller than a 1500 put to be in the money at expiration date, but it doesn't mean it will. Lehman or Bear stern collapses were out of probability 2 years ago. Hence, LEAPS deep out of the money puts were no probability, but common sens. Probabilities don't make money, but costs always eat it.
GOOG flies are inside a dollar market on a 30-wide, as an example of a fly market on a $400 stock. I've made more on flies that any other position.
thanks for the suggestion Engine... however, the vertical put credit spread will be painful if IV increases or the market drops. And more often than not, when the market drops, IV rises. I must admit that the notion of 2 legs is much better. I ended up at the various strategies in th poll because I was observing that the Iron Condor was losing alot of $ for folks... hence, if the IC was losing, how about the opposite side where one profit from material movements in the underlyer... Because of the theta effect, I could not afford to hold a reverse calendar spread for too long. After about 3 days, if I'm not profitable, then I look to liquidate.