It normally turns out to be months... In reality, it's either until it works, gets too close (i.e. a fly that has the front contract as one of the wings isn't really a fly) or something fundamentally changes that makes me reassess the whole thing. That's why one of the most important metrics for me when evaluating these trades is rolldown.
Yeah, for sure... You're providing liquidity into the mkt, which, essentially, means that you're short the "liquidity" option.
Something like that, I guess... It's really just all about trying to quantify the one "unknown unknown" which nobody has been able to properly deal with, which is liquidity. 2008 was an interesting time to observe the implosion of a whole variety of RV strats that were all based on a variety of erroneous assumptions.
I agree with this on the convergence side. But disagree on the divergence side. If you play both, then liquidity issues could be sort of handled .. from a portfolio point of view. [Options overlays aside].
Yeah, sure... To be honest, in my world I would be hard pressed to find actual "divergence" (as you refer to them) RV-type strategies. If I could, I agree, that would the RV dream.
I've modelled this, but that's as far as its gone. In reality, chasing price as it moves away is gonna make for expensive fills. I like the idea of playing both sides though.
Most of our two-legged futures spread entries are almost always taken on divergence. The flys and condors much less so.
Perhaps we are doing different things. If I see something that has more juice in the divergence, then usually it's not really something I'd expect to revert .. or move non-randomly .. at least by my way of thinking .. and measures. But, the idea of trading relatively stable relationships *both ways* is interesting & novel imho.
I would say that identifying moments in time where momentum becomes established and trend emerges regarding the non-random movement in two legged futures spreads is my core competency. It is certainly the underlying tenet behind my indicator package.