There is always a tradeoff between gamma and theta. Short term trade will have higher positive theta (good) but higher negative gamma (not good). Any big move - and your trade suffers significant loss. If there is a morning gap, nothing you can do to control the risk.
to RichardRimes: What if I am a day trader, see some support/resistance and want to profit from this neutral situation? Then the short daily spread seems to me better than weekly one... to options_fanatic: If I build risky spread with 50:50 Risk/Reward accepting the whole risk...
It really depends on what you are trading....options futures are good to use for that purpose, sure if you want to make a day trade then selling a straddle may work nice...spreads just arn't cost effective/efficient IMO for day trading.
What do you mean by this Spread effectiveness, the poor Risk/Reward ratio (small premium)? Isn't the risk of short spread much more higher?
short spread=long spread....there is no greater risk in a short spread than long spread. It is all in how you manage it. What I'm trying to say is when you put on a spread (short or long) you have to buy two legs so the commission and/or slippage is greater than buying/selling a single strike. For day trading you want a fast execution and very little slippage and obviously less commission since you want in and out the same day...soooo just buying or selling a put/call will give you that. Of course the trade off is much higher margin and risk......
I´m very sorry I typed the word ,,spread'' instead of ,,straddle''. Of course I know ,,short spread=long spread''. The question should have been ,,Isn't the risk of selling short time straddle much more higher?'' I mean, to sell weekly straddle on Friday, instead of just credit spread. I get the double premium, but the gamma risk will be even bigger...
certainly it is...I was responding specifically to your thought that you wanted something neutral...IOW you didn't expect much change in the underlying...in that case why pick a direction..selling a straddle IS a neutral strat..you are not expecting much movement ...again perhaps not the best choice for a "day" trade, but certainly a short term..... few day trade near expiration the theta melts away.