Leaderboard

This would be an apples vs oranges comparison. Obviously, with the big downward move the 94-93 put debit spread would have had a higher gain percentage using either week expiration. But that debit spread needed the stock to move downward to be successful - if the stock stayed the same or rose then the spread would lose. If I KNEW the stock was going to go down then debit spread would have been the trade to make. However, when I placed the trade I wanted to construct something that would work if the stock fell a lot, fell a little, stayed the same or even rose a little - and also gave me the ability to adjust if it continued to rise. My one substantial loss scenario would come on a big price spike in the wrong direction. Whenever I make an options trade I try to make it have multiple profit scenarios - the diagonal structure gave me that. With debit spreads you basically have one winning scenario and that is to have the stock move in your direction.

"ATM credit or debit" spread is a little vague, so without a specific example here is how I would compare: ATM spreads where your long leg is slightly ITM and the short leg is slightly OTM would typically lose or break even if the stock does not move. The diagonal would have a nice gain if the stock does not move. With the debit spread in particular, you need the stock to move in your direction to be successful, but with the diagonal you do not. A credit/debit spread typically involves both legs having the same expiration and if the stock moves in your opposite direction there is not a real good adjustment option. With the diagonal if the stock starts moving against you, you can adjust by turning it into a calendar. The IV typically does not keep coming off as most of that has already happened after the event - and even if the IV does fall, since you are both long and short strikes in different expirations the IV changes will basically offset each other. The diagonal is more like a calendar is that its a play on the theta working in your favor - the vega is not a concern in that post-event its unlikely that IV will affect your short leg to a greater degree than it would the long leg. I would compare the diagonal structure to a calendar, not a credit/debit spread. It is basically a calendar, but with a directional bias. Since the strikes are relatively close to each other, the trade will make money if the stock price stays the same or moves a little in either direction (obviously will make a lot more if it moves in the right direction). But, unlike a calendar, the trade will still make a profit it you get an outsized move in the correct direction.

With GMCR below 90 for the last couple of days, I closed this trade today. I closed the diagonal for 1.25 for a 36% gain, this is actually better than I anticipated given that GMCR had fallen well below my short 93 strike - but since GMCR options have relatively high IV there was still enough time premium in my May29 94 puts to allow me to get 1.25 even though the strike differential was 1.00 in the diagonal. I was thinking GMCR would have a less substantial drop this week, but with the diagonal trade structure I was able to make a nice gain even though the drop was much higher than I thought. I did the same thing with WMT after its post-earnings drop, buying the May29/May22 77.5/76.5 put diagonal yesterday morning for 0.72 (I didn't post that one in the forum because within 15 minutes of me making the trade WMT dropped some more and the trade was already up over 10%, so I didn't want anyone to jump in at a price much higher than mine). That trade is currently up a little over 30%, but I'm still holding and hoping to close for 1.00 or more by the end of the week. I'm liking this trade structure as a post-earnings (or post-event) directional trade when a stock has clear momentum in either direction - it can make gains if the stock price stays steady, moves a little in either direction or moves a lot in your direction, and you can adjust if the stock price gradually starts moving against you. The bigger loss scenario is when you get a quick and large move in the opposite direction, which is why I think the best time to trade it is when you get an outsized stock price move where a clear directional momentum is established. This may also be a good structure for VXX trades where the momentum is almost always downward - the BWB or 1x3x2 all start to lose if the VXX drops too much in your timeframe, so a VXX diagonal may work well although will have do some more analysis on this.

I've always heard the sheridan program is good. I know a lot of the strategies I use came from there. I haven't pulled the trigger to join. and probably should. However, I've heard most of the value is in the forums/community (probably similar to here). Some members here have done it.