But if the underlying moves heavily against you, making one of the leg DITM. Your loss will be greater than a normal same month IC due to the other leg.
OK, I've been giving this a try. It quickly becomes obvious what the main issue with this approach is - the margin requirements can be significantly higher - meaning that, in the end, your performance is lower in terms of RoC. I'll keep working on it though, maybe there's a different angle I can use.
A long DBL will make sense when the IV is low. When the total vega for the spread is positive. Vega for longer term option (the one bought) will have higher vega which will help if volatility increases.
Long $160 Short $170 Short $180 Long $190 Did you look at the image that was attached to the message you quoted?
Also, the real trick here, is to leg-into the position using current changes in spot and volatility as opportunities to buy or sell the calls so that there is as little of a net-debit as possible. Obviously, you want to buy your longs on low IV and sell the shorts on high IV. On a good day, you could get yourself into a net credit, call condor - which is essentially a better-than-free opportunity for even more profit later.
Thanks quazimofo. Yes, I did view the jpg but I couldn't figure out how you got such a favorable risk:reward on a condor. Now I understand. Over what time frame would it have been possible to leg into this? I'm assuming several days?
Yes, this sort of trade can be legged into in a single day, but yes, it can take 1-2 more days. In fact, sometimes, when the spot price drops lower than it should, I'll buy the longs just in case I can get the shorts later -- even if I don't the longs will appreciate quickly when the spot returns to normal. Obviously, this is speculation, but I think its pretty fair to say that all of in this forum engage in speculation anyway!
Some articles on options spread strategies: http://files.sheridanmentoring.com/download/documents/articles/JS_CALENDAR.pdf http://files.sheridanmentoring.com/download/documents/articles/JS_DC&C.pdf http://files.sheridanmentoring.com/download/documents/articles/JS_DD&BS.pdf Also, if you like to read about options with some philosophy and thoughts on casisnos mixed up, some good articles here: http://www.webtrading.com/options.htm Note: No registration required, enjoy!