Date of this trade is 06/03/2014. My intentions were to choose one that would track with the price on the chart. I purchased a Spread today on the TF. The scanner indicated that proximity to the underlying was 3 tics. The Spread purchased was “1 US SmallCap 2000 (Jun) 1110.0-1130.0 (4:15PM) @ 1121.1”. This was for the BMX at 9:33am. Then I added on when TF did a BMX again at 9:40am “1 US SmallCap 2000 (Jun) 1110.0-1130.0 (4:15PM) @ 1122.2”. I decided to exit when price action stalled a little above “Settlement” at 10:07am and I realized TF had already moved 1 deviation total on the day. My exit price at that time was “2 US SmallCap 2000 (Jun) 1110.0-1130.0 (4:15PM) @ 1124.3”. The actual chart price was 1127.0. A difference from the payout of about 27 tics. I’m sure there is a reason for this, I’m just seeking to better understand it.
Better Understanding Spread Volatility to make better choices of which one to choose
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Basically your delta is lower the closer you are to a strike. you bought right in the center which will mirror the market for a while but as you also did this early in the AM so there wa s lot of time until expiration therefore (just like buying a spread when the market is at the floor - or selling one when the market is at the ceiling will have premium) that is what you where running into - you where looking to sell when the market was moving up the ceiling (like what a seller would see). So time value is there as it approaches that strike. The closer to expiration the less you would see this.
So choices are (look at a wider spread so it will say in that fast delta longer. Or choose a spread that is not as in the center to get in ahead of the gamma/delta curve so it increases to and stays at 1:1 longer.