He is not saying the trade is wrong per se. He is saying that the trading is far from optimal. And optimal structures are pretty much the money shot in options. We are looking at 2 sides of a coin. The main argument being that you are not taking enough time decay risk so you will not get enough positive movement in the options price. My stance is to stay behind optimum risk reward and exit at max/risk reward, his stance is start your self at or closer max/risk reward and exit somewhat later.. The risk reward is a curve, so it changes over time. Additionally, I am referencing his previous posts on the volatility risk premium. It quite likely the longer time frame smooths volatility thus enabling the option seller to more fully realize the premium. Thus, making more money from you. Anyway, BK opens early tomorrow. They got me on fries. Good night!
I have been thinking a lot about what you and VIX wrote lately. The more I think about it the more complex it gets. First of all, option skews are different for different underlying. MCD has a negative skew: the longer you move out the smaller the IV. BABA on the other hand has a positive skew: the longer you move out the higher the IV. If you are a seller of MCD, you may not want to go too far out whereas for BABA you may want to go a little further out so you can capture the higher IV? So, effectively both of you are correct, it just depends on the situation. I guess analyzing each situation carefully is the key, as there is no one formula that can cover all situations. Thanks guys.