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<font face=”Greco”>Jeff

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<font face=”Greco”>http://www.theoptionguru.com/blog</font>

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No, I never use them on my spreads for 2 primary reasons:

1) I have the pleasure of monitoring the market during the day, although I am not a day trader and I don't sit here the whole day, I do have time to react to a negative move. Because of the short holding time, I do plan to exit early. Any move towards 445 will probably have me considering getting out (that is a potential Stop Loss area). 430 is a pretty significant support area from 2008, and GOOG expects to get approval for China – all Bullish signs. I won't enter today unless there is another gap up, but not too big of a gap because I don't want to go any higher than 440.

2) Spread trades by definition have limited risk. Although I wouldn't like it, I am prepared to take the max loss if something happens very quickly.

One other reason is price action. I have had many Vertical spreads move ITM on the short strike, and then have them move back to the OTM side. This month's AAPL Bull Put is a good example. The short Put strike is at 250. Price spent 3 days below that and if I had exited, say when price hit 251 or so, I would have taken a beating. But, AAPL is still in an uptrend (the trend is your friend) and I had two weeks to expiration, so I sat it out. Right now the price is OTM (258.09) and profitable.

Conversely, I had a Bear Call on SPY (weekly) with a strike at 104, and price moved strongly above that. Based on market sentiment, I exited the spread for a loss. You win some and you lose some.

◄ Jeff ►

It's a flaw that the gurus at TOS admit to. I guess if you want it more realistic, at least price wise, try changing to a higher price than mid when buying and a lower one when selling.

◄ Jeff ►

You get filled immediately at the midprice. Real life trading is far less accommodating.

Is there a way to tweak this is it is more realistic?