1. I believe the reason call calendars are preferred in a rising market is because you can set up the calendar by shorting a front month option and buying a later expiration call. Hopefully thereafter, the front month option will expire worthless leaving you long a call in a rising market so that your upside is now unlimited. Reverse that for puts. 2. You can play around with different strikes and expirations to try and get the break even points to encompass your desired range. For example, try a call calendar composed of short RIMM1116G57.5; expiration 16 Jul 2011 and long RIMM1117I57.5; expiration 17 Sep 2011. Break even is at 51.37 and 65.37. That gives you some more breathing room at the lower end of your desired range and is almost dead on at the upper end. With respect to taking profits, I suppose if it was more than 50% of max profit I would consider cashing in. That would depend though on the spread between bid and ask. It could be an illiquid situation for which it is better to let it ride. My main concern wouldn't be what to do in the event of a profit, but what to do in the event of a loss. Profits tend to take care of themselves. It's the losses that bother me. ps: pberndt seems to know more than me. You're probably better off taking his advice.
I use tos and am able to view risk profiles of p/l, delta, gamma, theta, and vega. I like your reasoning for using puts over calls because I know I don't want to deal with the assignment. Structuring the trade a little otm when placing it seems like a good idea so that you can skip assignment of short strikes.
1. that is a good plan, it just seems a little difficult. I'll have to work on my timing 2. i suppose i must do what you say here but it's probably worth it since i only need 2 contracts for the spread instead of 3 or 4. yours and pberndt's profit taking strategy both sound reasonable. thank you.
You won't be able to define your break-even points because you can't predict vol in the deferred month. You can make an educated guess, but don't confuse that with the known risk of a fly.
I was just looking through the thread and noticed that I didn't reply to you, sorry. What happened to me was that I sold spreads to close to the money and they went against me. I was sold by the higher premium and thought that the underlying could not go against me. Also, I was compounding credits on weeklies until I wasn't. I got hurt by the accelerating gamma of ATM options near expiration. Since then, I am trying to be less risky.
should really meet more people. Credit and debit spreads are similar. Buying call vert is same as selling put vertical. I said similar not the same, the subtle difference is inthe risk reward and the gamma esp near expiration.