Max Profit on Setup: 3.00 Max Loss/Buying Power Effect on Setup: 6.00 Break Even: 26 versus 26.06 spot Debit Paid to Spread Width Ratio: 67% Delta: -48.42 (bearish assumption) Theta: .28
Notes: In an ideal world, there would be a December expiry currently available for the front month leg (there will be one after October drops off) and a price in the 28 area to put this on, but I wanted to get a preliminary idea of whether it would pay and what the metrics were, with the focus being on the debit paid/spread width ratio (<75% is bueno). I'll look at pulling the trigger on this if price gets back to 28, adjusting the strikes if necessary to accommodate ... .
@themdtrader, None/have yet to enter. November (and probably even December) is a bit early for a seasonality play in natty, and the price shot up dramatically since I started watching in preparation for a short.
themdtrader
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@NaughtyPines, it's good you didn't go ahead for the short. Boxing it in a wide iron condor so I thought your idea was interesting, a lot of people lost money on the recent spike. I think your spread is about $4.00 now I believe, increasing volatility helped the position even though the direction was opposite your short. A short volatility + delta position could put you in a good place if you decide to place the trade in high volatility. Just a thought tho.
NaughtyPines
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@themdtrader, I did think about selling premium in it, but the call side skew is awful. The saving grace of a downward put diagonal is that you'll have several opportunities to roll the short put aspect out to reduce cost basis, but to have it shoot up like that immediately, well, that would be a bummer ... .
Had wondered about this because of the usual contango drift but so far shying away due liquidity, liquidity here not as bad as I expected.
NaughtyPines
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@Tom1trader, It's one of those underlyings that experience drag if the futures term structure is in backwardation (back month prices lower than front month). The other: USO, so the better play on these instruments is to short on strength.