It seems to me that the diagonal spread depends on VIX. Can you elaborate how VIX affects your position? Vega should be small initially and your position should depend on when the change occurs.
Yip I'm using the thinkorswim platform...they do the calculation of Theo value on the individual strikes so I just take the difference of the two. is that what your asking? I do know the IV based again on what TOS is giving me...just trusting that they are correct.
If you want that mid, you'll most likely have to leg into it. Most on here are against legging in due to more risk, blah, blah, blah, but I have found better credits this way. Right now the 1300's are 3.10 x 3.50. try to buy @ 3.20 and shave a dime after a minute or two of not getting filled. 1290's are 5 x 7.20. offer them @6.50 or so then shave a dime evey minute or so. GL.
Rally may be better able to answer since the CTM spreads are more his forte. However 1290 is not an unrealistic strike for us to hit if the FED has good comments in early August. If you are going to play right on the line of recent highs with a 10-point spread, I would prefer a premium closer to $5 but you are not going to get that really. But it is my opinion only. I live much further OTM so I would not do these strikes at all but Rally might have better insight.
Today I've been getting better fills on the SPY even after considering I've got to do 10x the contracts + commissions than on the same trades on the SPX. Just an fyi to check both if it's conpatible with the strikes you want.
Richard, theo. value is calculated based on HV, so you will never get filled using these calculation. FOTM options are priced using IV that usually is higher than HV. Coach probably can explain more on volatility skew or smile. The advantage of selling FOTM option (or credit spread ) is based on the fact that IV is higher, IMO.
As volatility increases it will push the higher VEGA positions up more than the lower VEGA positions. There is also a delta difference. I do not have the ES greeks in front of me right now but for illustrative purposes lets look at SPX options of similar strikes and their greeks: SEP SPX 1200 Put Vega 1.39 Delta -.20 Gamma -.18 AUG SPX 1225 Put Vega 1.10 Delta -.24 Theta -.27 As the market goes down and IV increases, the SEP puts have a bigger increase in price due to Vega. Moreover, if the drop in price happens closer to expiration, the theta differential also favors the long puts. Both of these hep against the delta differential between the two which can grow as the market moves lower since the AUG puts have higher gamma. Murray can explain better from his actual trades Just imagine the index went down 1 point after one day with a 1% rise in IV to see how the position would react
The market isn't really near a high or low right now so I wouldn't do a CTM trade at this point. I've been watching how 5 point wide spreads CTM react and would suggest doing a 5 pointer instead of a 10 pointer when the timing is right. If you are trying to put on a position anticipating a pull back today/tomorrow (scalping in a sense) maybe the 10 point spread is the way to go, would have to model that in TOS to see if that made any sense.
So does this mean we should try and sell better that the Theo (when spread is expensive) and buy less than the Theo (when spread is cheap) - waiting for the point where IV makes the spread price cheaper(buy)/expensive(sell) as compared to Theo which is based on HV?