The question is which is more suitable.
Suppose our stock is quoting at 1000. We are expecting it to go down. Which would be a better option.
a) Buying debt spread buy 950 PE /sell 925 PE
b) Selling credit spread sell 1050 Ce buy 1075 CE
Debit spreads lower risk high rewards if it works in our favour. Credit spread has lower reward higher risk in adverse cases.
We will consider cases when we are trading at 1) first 15 days of expiry and
2) last 15 days of expiry.
Let us now not consider cases where IVs will drop or rise. We ll assume Ivs remain same as one position will nullify other.
Some more points to consider
Which will make money faster? Which will work better in long run?
Suppose our stock is quoting at 1000. We are expecting it to go down. Which would be a better option.
a) Buying debt spread buy 950 PE /sell 925 PE
b) Selling credit spread sell 1050 Ce buy 1075 CE
Debit spreads lower risk high rewards if it works in our favour. Credit spread has lower reward higher risk in adverse cases.
We will consider cases when we are trading at 1) first 15 days of expiry and
2) last 15 days of expiry.
Let us now not consider cases where IVs will drop or rise. We ll assume Ivs remain same as one position will nullify other.
Some more points to consider
Which will make money faster? Which will work better in long run?