[dixonge]

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Originally Posted by ERD50 I'm not exactly certain of the mechanics of how it gets filled on the floor, but I always assumed they just fill your sale of the 790 put and your buy of the 780 put. So they just need to match each leg up with a buyer and a seller - not specifically another person looking for that complimentary spread (which I think would be a Bear Put Debit Spread, but I'd have to check).

I guess having the market makers in the middle does muddle the picture a bit...

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Originally Posted by ERD50 You are mixing things up here. If the other side closed their complimentary spread position at a profit before expiration, then you need to compare them to a credit spread position that was opened/closed at the same time, and that would be closed at a loss - netting zero (disregarding spread/comm/fees). The position you hold to expiration can only be compared to it's complimentary spread held to expiration. If you had a gain, they had a loss.

True. But don't underestimate the number of people trading with weak money management discipline. They will hold that OTM position until it is almost worthless because - well, it MIGHT suddenly shift and go ITM. Ask me how I know...

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Originally Posted by ERD50 Sure, the books usually deal with expiration to make it clear how these things work. You can close earlier to lock in a profit or limit a loss, but.... at that point you are guessing on the future moves of the market. Locking in a gain means giving up some of the total gain you might have if held to expiry (but relieving you of further risk of loss). Limiting a loss means you give up on the chance that the position returns to profitability at expiration, which it might do. It becomes market timing - good luck!

But a strict stop-loss strategy (pre-defined and you stick to it) takes the guess-work out of it. Getting that set at appropriate levels (%? x$?) takes some experimentation or backtesting. Emotions have to be minimized.

It's still market timing in a sense, but the guess-work (so to speak) is built in up front in an effort to survive losses and maximize wins.