Can you tell us more as to why you've focused on a time spread seemingly to express a delta opinion? You should be able to execute your opinion with verticals. Don't misread my query to imply that a time spread is somehow "faulty." But it's a more subtle position than a vertical, even more so if you're primarily focused on direction.
You're helping me formulate my thoughts more clearly. Thanks. Before I answer your question, I should point out that I tend to think defensively -- "what happens if the trade goes against my directional bias?", assuming I have one. If I have a bullish bias and want to put on a VERTICAL spread, in my mind I would rather be short an ITM call than an OTM put, as the former has a significant delta advantage when I'm wrong, and both have similar gamma/vega/theta exposure. (I should point out that I have no appetite for naked short options, and that I also understand the bid/ask spread issues with debit spreads.) So, constructing a bull vertical with calls at least postpones the decision whether to (a) close out a losing spread or (b) merely close out the profitable short strike (should I think a rebound is imminent). Does that make sense? From there the question becomes whether or not I want to flip vega in a directional trade, and then for NON-directional trades is there an inherent advantage for the defensive trader in constructing delta-neutral trades using verticals, diagonals, or combinations thereof.
I'm not sure I understand the above, but with the diagonal, I think you're asking whether you can hedge delta with vega, at least to some extent, to counter what might turn out to be an incorrect directional assumption. My experience is that you will find changes in vega in the opposite direction to be more harmful than you'd expect, and thus your p/l will suffer more than it would with a simple vertical. And when you take into account a premium decay curve that at times becomes distorted, I think you'll find yourself puzzled about your p/l more often than a collection of verticals. A time spread is a reasonable position, but I'd construct it to look more like a fly than a true directional trade. I do think they can be valuable in what I'll call "inventory." That is, a collection of continual trades you place in a single underlying in which you expect to have an enduring position. Calendars and diagonals occasionally allow you to purchase less expensively what will become the following month's long option in a vertical. This is difficult to see immediately, and if you're oriented to event-type trading it's not particularly relevant. It can be modestly beneficial when you carry positions month after month.
Yes, that's a good way of putting it. I want to hedge delta with vega when possible, so adverse moves aren't as painful. It seems to me an adverse move on a bullish trade would have opposite volatility implications to adverse moves on a bearish trade, and so I might prefer the opposite sign on net vega. Regarding your second paragraph, would an example be a diagonal (say long 50 delta, short 10 delta) that one hopes to continue to fund with future short 10 delta trades on each expiry up until we are finally in a vertical? Sort of a "covered call" approach where the underlying isn't the stock but rather a longer-dated call (or puts if we're bearish)?
Let me see if I can understand what you said in plain English: Let's say you establish a diagonal spread with long ATM call for the far leg and short OTM call for the near leg like what jimmyjazz said. You established a positive delta. If the underlying goes up usually volatility goes down and your position does not go up as much, if the underlying goes down usually volatility goes up and you do not lose as much, so in a way it is like hedging. But if vega and delta both go against you things will be very painful? When can that happen? Appreciate your reply.
I guess you could think of this concept as applying to a multi-month time spread, but I don't typically do that because they're more complex trades than is usually called for. If you're carrying inventory, I'd use front and deferred month. Unless you know of an event that no one else knows about. But that would require specific, local knowledge.
While not incorrect, I don't think it's as helpful for most traders to think about the value-add of vega and delta in the way you're proposing because the relationship between direction and vol are not perfectly predictable. Instead, consider what you need to accomplish with the addition of the position. For example, you want to add some deltas. If you add the time spread as above, you've added not only the long call vert, but also the atm long calendar. If that's the trade you want, then the diagonal is a logical position, although my guess is that you could add some type of delta-biased fly-type position with equivalent deltas and come out ahead. If you are adding deltas because you think the underlying is moving up from here, then you'll find your long time spread position costing you money, because soon enough, the calendar will start to lose money.