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The wonders of google - let me answer my own question by giving you
the following reference:
http://www.mercury-capital-management.com/indexoptions.html
Makes sense because the option you buy are more out the money, where
Black Scholes misprices on the cheapside. In practise I guess you'd be
affected a lot by the volatility spread - there is no such thing as a
free lunch. It seems very similar to a normal net written strategy,
same risks (price goes above/below your strike). Has the added benefit
that you have protection when things go haywire, but your first strike
(on the written option) should already not be exercised for you to
profit the full premium. So I think in practise you can just focus on
the sold position and use the bought one for protection - or ignore it
and only buy later at a critical level if needs be - for which you get
the advantage of not paying a premium in return for more active
management...
Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder
http://www.ferra4models.com
http://fun.ferra4models.com
--- In equismetastock@xxxxxxxxxxxxxxx, mgf_za_1999 <no_reply@xxxx> wrote:
> Now that you have us drooling, does 'found this to be quite possible'
> mean that you have actually done it or is it a backtested system?
>
> What is an index credit spread?
>
> Regards
> MG Ferreira
> TsaTsa EOD Programmer and trading model builder
> http://www.ferra4models.com
> http://fun.ferra4models.com
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
> <andysmith_999@xxxx> wrote:
> > Is anyone consistently making more than 5% per month over the last 3
> > years? I've found this to be quite possible with index credit spreads.
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