In other news. Looks like PALM is gonna break out to the upside. Deciding right now whether to play a bull put or simply long calls. We shall see. I want to make sure it isn't going to fake me out first.
Cashe , very often Vertical has an "anti edge" if vols smile is exists. IOW , you selling a leg with lower vols that you buying. The SPY 126 had a vols of 13 , but 122 was at 17. Can those odds come back and hurt the PnL in the long run? Unless you are very good directional trader.
I thought that the IV smile results from factoring in the outlier probability ("black swan" events). From this point of view options are priced correctly and in the long run the vertical spreads' expectancy is still zero (ignoring slippage and commissions). So, vertical spreads are mostly directional plays. The IV should be considered more in choosing among ITM / ATM / OTM strikes: i.e. when IV is in a high percentile should favor an ATM short option, when the IV is in a low percentile should favor an ATM long option.
I'm not sure what you are getting at. The further OTM strikes almost always have a higher IV. This is especially true the closer you get to expiration. So the "anti edge" you speak of always exists. Of course, certain tickers have a steeper smile than others. In answer to your question. Yes, if both strikes had the same IV, odds/profitability would increase.
Correct to the above. Because options are more or less "priced correctly", one cannot play vertical spreads non-directionally and come out ahead. UNLESS the strategy includes risk management techniques and adjustments. These skills are what provides an edge. I personally prefer to make directional plays. I won't reveal everything about how I screen for positions, but I almost always have a direction in mind when I initiate a trade. (The exception to this would be when I do a combo to fly conversion) I generally only make a mental note of IV before making a trade. I am more concerned with any event that might cause an extreme IV increase. As far as using IV to determine whether to play ITM, ATM, or OTM. That pretty much takes care of itself. For example, I currently have some IBM puts. I would've liked to play an ATM bear call spread, but because of low IV I couldn't even get close to the credit I wanted. In the end I had to just play long puts (or I could've gone with an OTM debit spread for pretty much the same effect).
AHHHH!!! Thanks, I would've hated to let that little bit of info slip by me. That is usually the last thing I check for during my search.
Decided that PALM is not worth the ER risk. Had to take the loss on the BBY position. Strikes are too far apart to roll effectively and I think that where I had resistance before is now going to be a pretty strong support. If it approaches the support I am looking to get in on a bull put spread. Lost 50% of what I stood to gain at a worthless expiration. You win some you lose some I guess. I'm glad I put on that Bull Put on SPY yesterday. I didn't expect this much of a rebound for the day. That leaves me much better protected on my MAR position.
Today's Action BOT 1 BBY MAR 50/55 call spread @ 3.00 Year to Date P/L Account Value: $10,005.00 YTD Gross P/L: 110.00 YTD Commiss: 105.00 YTD Net P/L: 5.00 YTD % P/L: 0.0%
This one is a prime example of being a little bit off on the timing. I wasn't patient enough to wait for it to get up to resistance when I first bought the IBM put. I was forced to take a loss because theta was killing me. I still felt the position was right so I got in again at a more optimal spot and sure enough, it worked out like I had originally forecast. I made a fraction of what I would have if I'd been patient on the first play, but a gain is a gain. I'm just irritated that I wasted a couple weeks for a fairly insignificant net return (after figuring in the original loss). Today's Action STC 2 IBM APR 80puts @ 2.05 for a $140 gain Year to Date P/L Account Value: $10,142.00 YTD Gross P/L: 250.00 YTD Commiss: 108.00 YTD Net P/L: 142.00 YTD % P/L: 1.4%