Rut is getting harder to fill. I had Apr/Feb 860/810 opened at 0.05 debit, but it didn't get filled till the mid showed 0.25 credit. It was 30 cents from the mid. My Apr/Feb 740/780 put is not filled yet. It is so hard to get filled and we as spread traders are losing a considerable amount of "edge".
Might get easier after the Fed minutes later? or are you stating an observation of your the from past few months?
I made the comment based on this morning's fill. However, it is in general true for the past 2 months. Diagonals seems harder to get filled when compared to verticals.
Ryan: You've been doing the diagonals now for a number of months in lieu of or along with credit spreads. I believe that before you started with the diagonals, you pretty much only did vertical spreads. As you look back at your trades, would you mind providing your honest assessment of how successful the diagonals have been. From your posts through these months, I seem to get the impression that it hasn't been that successful. Maybe because of the low IV environment? Thanks.
I was kinda wondering the same thing. I can see the attraction of the diagonals especially when IV is low and you think it may rise but over-all compared to FOTM credit spreads...I'd also be interested in your opinion as to the comparison.
Quick update on my Feb/March diagonals. I spoke a little too soon the other day, big comeback in about 2 days (basically at breakeven right now, looking at some adjustments as I think I got into my positions too early, see below). My results have been a little mixed. I have had a few months where I was looking at a good profit and it evaporated right at expiration (move in underlying or vol collapse or both). It was Oct or Nov (don't have my info in front of me right now) where I did manage a good return and Dec wasn't too bad either. Other months the profit has been minimal. I am still learning about good entry times. I think for Feb/Mar I entered too early. There seems to be better entry opportunities around 20-30 days to expiration (if volatility cooperates). No definate conclusions. I do like the strategy as it allows for flexibility if the underlying gets close to or hits the short strike and still take a profit. I get to stretch my brain a bit sorting through the different adjustments I can make. I don't like the margin required (who does?). Getting a decent fill is really hard, this is a big drawback to the strategy. I'm still feeling things out but it seems to be a decent strategy, just more variables than a straight vertical. One of the attractions of this strategy over a FOTM credit spread is the help volatility will give you if/when we get a quick, steep decline in the market. With FOTM you are pretty much screwed, with a diagonal not as much (depending on several factors). I have traded these in a similar style to Sailing (he may have changed his strategy now that he is working with Mav). I do like Mark's method too, just haven't tried that one yet. Mark seems to use a lot more margin for his DD but he doesn't have the "dip" in the P/L profile I have with mine. It is a vega vs. theta debate there that has been argued both ways in this thread before. I think my analysis above is about as clear as mud. Basically I do like the diagonals and will continue doing them. I'm also looking to get back into CTM verticals again on SPX and RUT. I haven't traded CTM lately, looked at some but didn't place any real money at risk (darn low volatility ). I spent the last few months studying futures (one of my new years resolutions last year that I waited until November to get started on). I went to a TOS class that talked about using futures to hedge directional risk for options positions, it was pretty interesting and might add that in at some point too. Most people on this board (me included) look to add different spreads for hedges. The problem I have experienced with that is getting good fills. With futures you don't have that problem. Take my rambling post for what it is worth. I'll keep posting my positions, good and bad so we can all learn together.
Thanks Ryan for taking time to respond. It is very helpful. I've wandered into a couple of diagonals myself and am beginning to gain some confidence (still a novice). Mixing it up is probably the sane way to trade because different markets provide different opportunities.
I've had more than 1 month where I had the market move very close to my short strike. Didn't have anywhere near the panic I would have had with the same situation in a FOTM. It actually makes things more intersting. You can move into a vertical, a butterfly or take your chances with expiration. Lots of options .
Thanks for the explanation as well. Hey, if you made money or broke even during October and November, I'd say you did a hell of a lot better than us vertical bear call spreaders. What is interesting is that in several cases you found that waiting till expiration caused what profit you had to evaporate. I could swear that Mark and Sailing had a debate on this and Murray was pretty much for sticking it out to expiration. I think his reason was the large drop in theta of the front option. Just goes to show that there are no certainties and every situation has to be evaluated and reevaluated.
With the diagonals I have done there were a few months in a row where the market zoomed up to my short call with about a week or less to expiration. With a diagonal you want the market to expire right at the short, you just don't want it to go past the short. I've had months where that run up dropped volatility and most of my profit with it. There was one month where I did hang on and let SET work its magic (with a little encouragement from Sailing) and it worked out very well. SET was about 1-1.5 points short of my short . The way I do the DD theta is not the biggest component, it is mostly a vega play. The way Mark does them they are more of a theta play. If we get a vega spike soon I will take the money and run at this point. I didn't do a good job putting on either of my positions (SPX and RUT) so I will take a small profit and focus on Mar/Apr positions.