If you are going to do a OTM spread you may be better off doing a binary…as it will make full profit if hit. High reward low risk spreads have to move all the other way to the other side of the spread to get max profit. Binaries only have to expire 1 pip in the money. The OTM spread will only start to hedge you when it gets lower than the price you sold so you still may be taking on more risk than you want you will need to subtract distance sold from distance bought to see potential risk in the trade even with the hedge of an OTM spread.
By call I am assuming you mean buying a spread. They are not technically calls as they can not call anything away from you nor can you call something away from someone else (like a stock/future contracts etc…) They are all cash settled.
I often will trade the ATM spreads (ones that are near the center and on par with underlying. I will use an actual stop loss - meaning i will exit if it hits it. But if it moves in my direction i will choose a lower spread or a binary to hedge off the risk so I no longer have to worry about a stop.
I do not trade the master spread as there are better spreads you can trade that are on par with the underlying for less risk (you mentioned the 1500 to 1580 which would be a master spread). I would rather by a ATM spread that is on par with the underlying that has the same expiration like a daily or a 8 hour spread.
When buying a hedge binary or spread consider the cost…the cost may be similar or equal to just buying a lower risk spread close to the floor as you haveve to add in this cost to your breakeven which usually you are trading the ATM spread to be closer to the underly market and not have the large breakeven distance.
If you are just looking for a large one day move you may be better simply using OTM binaries knowing that many will not work but the one that does will make a lot more than those that lost. Ie risking $5.00 lose 7x (down $35 then if it does break it could make $95). Really all depends on distance to profit how much risk you are willing to take etc… Also use the deviation levels to help you determine realistic distance.
[quote=tommyboy2020]would selling an out of the money bull spread with a high reward low risk scenario work and buy at the money call at the same time
just in case the market goes against you be an appropriate strategy
for example the market is at 1548 buy a 150 to 1580 call on hopes of a move up then buy 1550 or less binary just in case you are wrong as a hedGE
or vice versa use the same tactic up or down on big moves(MY REASON FOR THE QUESTION) i think in the not to distant future the SP 500
in in for a large drop or a market correction when the bulls take profits from this last months run up
and after the correction a new run a t new market highs will follow BASICALLY IM A LONG TERM BULL LOOKING TO SHORT A CORRECTION AND THINK BUYING SAY 1600 CEILING WITH A 1530 FLOOR WHEN THE MARKET IS AT ABOUT 1662 IS THE LEVEL TO PLACE THE TRADE AT[/quote]
