Diagonals involve long and short options in different expiration months. Put ratio spreads is buying, for example, 10 puts and selling 20 puts further OTM in a ratio of 1:2 in the same expiration month.
I guess theres not much we can do with 60 point wide spread once it penetrates the short strike,right?.
Coach, I have used a strategy like this for some time. I don't know what it is called. An example is: On 7/13 when iwm = 68.2 Long Aug 70 call @ 1.65 Short Aug 71 call @ 1.2 Short Jul 70 call @ 0.55 Net credit = 0.1 If the Jul short expires worthless, I will be taking a risk-free spread with a potential profit of additional dollar. Any comments to this strategy?
The ratio of 50/45 is virtually inconsequential but it is a "ratio" spread nonetheless IMO, don't get too hung up on the naming conventions. If you can construct combinations of long and short options in front and back months to match what your expectations are for time, direction, volatility and skew activity then you can come up with your own names. The net greeks of your position will tell you what the spread wants to happen in order to make money. If it is long vega then it wants volatility to increase. If it is long deltas then it wants the underlying to rally etc. Dissect your position into two ratioed diagonals. Then dissect each diagonal into a calendar and backspread. Understand how to manage each diagonal - when is the best time to roll. What adjustments to make etc. OR dissect your position into a short front month strangle and a long back month strangle etc. Good luck. MoMoney.
Of course if iwm surges the lone short call will increase in delta faster than the AUG spread since it is both long and short options with time value. It is not called anything specific really. It also can be looked at as a 70 Calendar spread with a naked $71 Call.
I want to trade cash-settled, European exercise index options and want to open Oct-Sep diagonals now. I cannot find anything to trade with Oct options - any suggestions (besides XEO)? Mark
MO thanks for your wonderful explanation.I am seeing things in new light. ------------------------------------------------------------------------------------ The net greeks of your position will tell you what the spread wants to happen in order to make money. If it is long vega then it wants volatility to increase. If it is long deltas then it wants the underlying to rally etc.