I don't get this. At 40, the middle long call comes ITM. Why would max loss be between 40/45? Obviously if you and spindr agree on this, I'm not debating the point. Just curious. And too lazy to fire up a chart so I can cheat.
For the very simple reason that the short 35 call will be more ITM. Forget about the long 45 call for a minute, and what you are left with is a 35/40 short call vertical, which has a max loss above the long call strike and a max profit below the short call strike.
Oh yes, sure, I see. I was thinking of 40 as the max loss point... but obviously 40-45 all have that same max loss, while 35-39 doesn't.
Yep,you're right... that's the case. The ITM put has a higher delta and lower gamma so it creates an unbalanced risk graph (less option delta gained as the underlying drops versus a higher delta loss if the underlying rises). I doubt that this will make much sense but so far, what I'm seeing but not quite grasping the practicality of the tradeoffs is ... Using the first ITM put means that fewer puts need to be bot since the delta is higher. That means less time premium purchased and the maximum loss if traded until expiration (which I usually don't) will be lower. That's a good thing. But the ITM put (compared to the ATM) lowers the maximum gain in either direction away from current price, should you get that nice move. Not a good thing. Guess I need to crunch some numbers.