I'll defer to you on futures since I have limited experience with them. I do believe that if one can, one is far better off scalping intraday moves and being in the luxurious safety of cash overnight. However, with options, that's usually not the case since I think that the majority chase time decay. As for exit risk, total closure isn't a problem. One can easily whittle down a position of size. Exit temptation is not a strategy risk. That's a problem of judgement. If he chooses to leg out and gets burned, that's the risk of trading and is his fault. Commissions are not a major issue unless one is naive enough to be anywhere but at a cheap/deep discounter. They're simply part of the cost of doing business. I don't recall the OP mentioning whether he was doing puts or calls. Call calendars would be less problematic. Post drop, near month short calls will become relatively cheap despite an IV spike. They'd be closed immediately. Rollking them down a few strikes might be viable since they'd bring in fresh time premium. Whatever inflated IV was paid to close them would be recaptured (and then some). Lower strike protective puts could be also closed or rolled down. How feasible any of this is would be determined by prices and conditions at that point. Put calendars initially would be a PITA. Post drop, margin becomes a disaster and any early exercise makes it even worse (higher margin requirements for the underlying). That could force the closing, possibly precluding any reasonable adjustments. The one thing you mentioned that I can't get my arms around is, what will the spreads be? I remember Oct '87 with the Holland Tunnel wide spreads (if they were providing quotes) and I have no answer for that boondoggle. One could be forced to close (the margin issue) or ride it out (being less able to capitalize on a bounce). All in all, I think a 15% overnight disaster is quite survvable if one calculates the downside risk and titrates with a modest amount of OTM protection. It could be 10% OTM and will still mitigate major loss. And with more long legs than short, coupled with an IV spike, it could even make the position profitable. The more, the merrier!
Dan Sheridan has some good articles on calendar spreads, particularly a style he calls guerrilla calendars...
Jones, Thanks for the link, I also found this which looks like an old jones thread. http://www.elitetrader.com/vb/printthread.php?threadid=131673 Also this looks pretty good for some rule outlines, http://www.traderczarek.com/home/calendar-alchemy (no connection)