Double diagonal vs. iron condor.
This turns out to be more difficult that I thought. I see nothing feasible using SPX Jul and Aug options.
I need more time to find a suitable trade.
Jun 6, 2013
The video explains how I chose the following spread. I would NOT make this trade in my personal account and cannot recommend this for anyone. However, it is worth our tracking for educational purposes.
This trade was made was VIX is 17.29. That is at the high end of its very recent history, but below the longer term average of 20. There is no compelling reason to own positive vega now, and thus this is a theoretical trade.
Diagonal spread

Buy SPX Aug 1460 put (delta 14)
Sell SPX Jul 1500 put (delta 15_
Debit $225
Compare with Vertical spread

a) The vertical spread I would choose, if trading only the credit spread:
Buy SPX Jul 1490 put
Sell SPX Jul 1500 put
Credit: $92
b) The vertical spread that corresponds with the diagonal spread:
Buy SPX Jul 1460 put
Sell SPX Jul 1500 put
Credit: $310
NOTE: We did not buy a calendar spread. But we do own the calendar spread synthetically.
We paid $225 for the diagonal when we could have collected $310 by selling the vertical put spread. The difference, $535 is our synthetic cost for owning the bearish Aug/Jul 1460 put spread.
Jun 7, 2013
Today’s rally (SPX is higher by 14 points as this is being updated; SPX = 1637) points out the importance of not paying too much debit for any diagonal spread. Right now, our position (Aug 1460P/Jul 1500P) is short one delta. Thus, we can expect to lose a little value on a rally (14 cents on a 14 point rally).
The position gains 3 cents due to positive theta (and 9 cents for the FriSun weekend).
The rally also costs a bit when IV declines. Vega is +36. With VIX down 1.34 points, that should be costly for our position ($0.048)
I note that the current midpoint for the spread is $2.10 and that the value of the position has declined. There is no urgency to make any trade decisions, but being aware that a rising market can harm a put diagonal is important. In contrast, the midpoint of the simple put vertical spread is 6 cents lower at $0.92.
Jun 12, 2013
noon
SPX = 1619
VIX = 17.94
Diagonal spread: 1.80 to 4.10; midpoint is 2.95. Each option has a delta of 13.
Vega = +31; Theta = +10
Delta and gamma are essentially zero.
Vertical spread: .10 to 1.80 (absurdly low bid), with a midpoint = .60
It appears (I say ‘appears’ because the bid/ask is so wide there is no way to know the true market) that we can exit each of this positions with a profit.
No action taken. Plan to hold, looking for time to pass or IV to increase before exiting.
Remember: As option traders, we are in this trade to earn money; not to hold to expiration looking for maximum profit.
Jun 20, 2013
Market lower.
RVX higher.
Time to exit.
SPX = 1613
RVX = 21.30
Diagonal midpoint = 3.50 and falling as market makes a minor recovery (it is 8:52 am CT)
I would look to exit for a credit of $3.45.
If you are still bearish, I would offer to exit at $4.00 (the midpoint was $4.70 earlier this morning, but I was too busy to get to this trade.
The credit spread has a mid of 0.85. Nothing done here.
July 8, 2013
Time to take our profit and exit the trade. If this were a real position, I’d bid ten to fifteen cents to get out. I don’t have a suggested price, but with only two weeks to expiration, as ‘safe’ as this position looks, I prefer not to take that risk.
8:30am. The spread is offered at 10 cents.