Please comment on: "I've seen backspreaders go broke as often as naked option sellers." - http://www.elitetrader.com/vb/showthread.php?s=&postid=2102218
What's so hard to comprehend? If one does most any strategy position in real size and the worst possible scenario for the position occurs, would you expect a good result ?? Add in a dose of money mismanagement and you're really cookin your goose.
1) Premium sellers can go broke from a single, gigantic loss. It's death by the guillotine. :eek: 2) Backspreaders can go broke from taking lots of losses before a gigantic profit occurs. It's death by one thousand cuts.
According to McMillan, "The strategist must be alert to the possibility of early exercise in this type of spread, since he has sold a call that is in the money." My guess: Probably any uncommon combination of uncommon volatility and uncommon leverage would kill while trading with common knowledge!