I have started to paper trade double diagonals when soon I realized that a slight change in IV can be really harmful if the long legs are not appropriately placed.
As such, started to trade different set ups in the context of little to no IV change, for example, short periods of not volatile events for the underlying (e.g. SPY – 0-1 DTE for the short leg and 7-14 DTE for the long leg).
All that to realize again that, even when IV ranks remained unchanged, either I lost money or my profits were not as high as expected.
What I’m I missing, if IV is not the one that is messing with my long options?
0 to 1 DTE double diagonals on SPY: is IV hindering my profits?
byu/Comfortable-Entry341 inoptions
Posted by Comfortable-Entry341
3 Comments
It may just be due to the environment we’ve been in the last week. When we have these nice slow uptrending periods, the IV on the weeks out is going to continue to decline. Try backtesting on different market environments.
Another factor is that we haven’t had any important data days since FOMC day, so front month IV is just really low
Diagonals and calendars are tricky. From my experience trading, this is the best scenario:
1. Building the calendar over different IV periods. Buying a long call 45DTE when the IV is low and then sell a call when IV is high. But all this really does is reduce your cost basis on the long call, which increases the POP.
This has to be structured around high IV events like CPI’s and earnings and you have to have a bullish outlook.
Vega wrt theta wrt gamma gets weird extremely close to expiration. If you go further out with the trade it becomes a bit more palatable.