For me this isn’t a theta play. I’m explicitly positioning for a sharp volatility gap if/when it happens before expiration. I’m comfortable paying negative theta while VIX stays compressed. If we get a sudden spike, the spread should expand quickly and I’d look to take profits early rather than hold to expiry. If volatility never shows up and theta starts to accelerate, around ~30 DTE is where I’d reassess or cut the trade. This is more of a convex bet on a volatility pop than a “sit-and-wait” spread.
I have been curious to see the negative theta on this type of trade despite the 5-spread — never having directly traded a VIX spread before.
Thoughts on how long you would hold vs close, with theta decay speed up vs waiting for potential volatility? >=30ish days perhaps?
For me this isn’t a theta play. I’m explicitly positioning for a sharp volatility gap if/when it happens before expiration. I’m comfortable paying negative theta while VIX stays compressed. If we get a sudden spike, the spread should expand quickly and I’d look to take profits early rather than hold to expiry. If volatility never shows up and theta starts to accelerate, around ~30 DTE is where I’d reassess or cut the trade. This is more of a convex bet on a volatility pop than a “sit-and-wait” spread.
I was just thinking about what kind of a structure would provide a good defined risk on this low-vix opportunity. Good work!
Surprised to see the 15’s again, glad we have a goodly amount of time still.