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Post by yello62 on Jun 7, 2013 17:47:28 GMT
i believe that i have heard this expressed often, the tasty way is to be sellers of premium, not buyers. as i understand it, selling provides a better statistical chance of success. that being said, i know that sometimes the folks to purchase rather then sell.
i think i heard tom say this week that he uses the implied volatility numbers to drive the buy/sell decision.
is my understanding correct? what other criteria is used to make that type of decision?
thanks,
tony
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Post by yello62 on Jun 7, 2013 18:24:02 GMT
i saw that, thanks natalia. i was hoping to launch a discussion around the info.
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Post by ThetaJunkie on Jun 7, 2013 18:45:51 GMT
is my understanding correct? what other criteria is used to make that type of decision? IV drives everything. I take a look at the IV percentile when trying to decide what type of vertical to put on. If IV percentile is < 25 in this market with low IV, then I always buy a debit spread. I may have to buy 2 strikes in the money and sell one out of money to get a positive theta though. Or I'll look at a diagonal. If IV percentile is above 50 then I'll always put on a credit spread as I don't want to pay for the extra premium from the IV. Between these then I need to judge my conviction. A debit spread is the more aggressive trade. |
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Post by twiddletrade on Jun 7, 2013 19:05:43 GMT
thetajunkie, great answer the point on how to get positive Theta on debit spreads was always hazy for me....thanks
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Post by yello62 on Jun 7, 2013 19:06:25 GMT
theta,
more aggressive for what reason?
tony
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Post by ThetaJunkie on Jun 7, 2013 19:17:39 GMT
theta, more aggressive for what reason? tony Break-evens A debit spread will have a smaller probability of success than a same width OTM credit spread. For example QQQ's Buy Jul 73/74 long put spread (1 ITM, 1 OTM bearish trade) - risk .50; break-even is 73.51. Sell Jul 74/75 short call spread (2 OTM bearish trade) - risk .62; break-even 74.38. |
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Post by yello62 on Jun 7, 2013 19:38:03 GMT
i think i understand, i'm gonna need to ponder on this. been a little hectic on my day job and the synapses ain't all firin' about know.
tony
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