So the lesson for next time would be to select the nearer expiration to get the time decay and perhaps increase the spread to 2-3 strikes to increase net delta? I haven't figured out how the delta/theta work to generate the profits.
I would not say there is anything wrong with the trade Peter has posted ( if someone has a bullish bias). If Pete has placed the trade 2 days before he posted on the forum, there was a 100 point move which is a small move for DJX, not much to expect. BUT as this is a vega negative trade, notice that on those days VIX (volatility) has been going up, quite the opposite you would expect when price is increasing. This probably have offset the gain from the price increase. As delta is positive, any price increase will increase your profits, as vega is negative any volatility increase (VIX going up) will decrease your profits and vice versa.
The book recommended by Bermudan Option is a must to read, it very well explains the greeks.
I agree it was a good trade - $22 profit for $58 of risk is a nice return for a few days work. Still it would be nice to be able to get more when the instrument makes a quick 7 point move (assuming that the trade was entered around $159.) But in exchange for limited risk, we have to accept limited return as well.
It is interesting to note that an increase in volatility actually works against you once the trade is in the money.
For vertical spreads yes but in most cases this effect will be minimal. Your main foe will always be delta here (and theta later on kicking in).
I have attached a chart from TOS for a simple vertical spread on AAPL showing the effect of volatility. White line is current position P&L, color lines are the P&Ls when raising volatility by 5% in 4 steps.
As you start to become in the money for the spread vol will work against you and with you when you start to lose money. Again under normal circumstances when price is going up volatility is going down which will further help you. Should you be in the money high up in the curve and price collapsing with volatility rocketing up, well that could hurt in addition to the a potential delta issue.
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I agree with must of the above replies, especially with not going too far out with a spread. However I think spreads are fantastic, especially for swing trades, since the market does have a tendency to go into range conditions with little or no warning. Time is what burns most option traders, rather than direction.