Unbalanced IC

Use unbalanced IC when you have a directional bias but still expect range-bound movement. If you think the market will likely stay flat or go up (but not crash), bullish unbalanced captures more premium while expressing that view. Use balanced IC when you have no directional opinion.

Start with a 1.5:1 or 2:1 width ratio. For example, if standard width is $5, try $10 on the biased side and $5 on the protected side. More extreme ratios (3:1+) are aggressive and should be used sparingly.

It has asymmetric risk - higher on one side, lower on the other. Total risk depends on which scenario occurs. If your bias is correct, unbalanced outperforms. If wrong, you face larger loss. Size based on the larger risk side.

You'll face the larger max loss (that's what you accepted when choosing unbalanced). This is why sizing matters - even the larger loss should be acceptable. The trade-off is: more credit when right, larger loss when wrong.

Yes, keep the same expiration for a standard unbalanced IC. Using different expirations creates a diagonal or calendar-like structure, which adds complexity. Master same-expiration unbalanced first.

Equity skew makes puts more expensive than calls. Bullish unbalanced (wider puts) works WITH skew - you sell expensive puts. Bearish unbalanced (wider calls) works AGAINST skew - you're selling cheaper calls. This gives bullish unbalanced a structural edge in normal markets.

Usually no - the delta is intentional; it expresses your view. Hedging defeats the purpose. However, if delta becomes excessive (>30) or you no longer believe in your bias, you might partially hedge or close the position.

Width imbalance is simpler and cleaner - same contract count, different risk per contract. Contract imbalance is more aggressive - more leverage and more delta exposure. Start with width imbalance. Use contract imbalance for stronger views or specific strategies.

Yes, but consider: rolling the larger side involves more capital. You can also roll to a balanced IC if your bias changes. Rolling the smaller side is simpler. Always verify you can roll for credit, especially on the larger side.

Track total position P&L, but also monitor each side separately. Know how much credit came from each side, so you can set appropriate stops (2x each side's contribution). Calculate your breakevens accounting for total credit received.

Compare 25-delta put IV to 25-delta call IV vs historical average. If current skew is at 80th percentile (steeper than usual), puts are overpriced. Your bullish unbalanced captures this excess premium. Track skew percentile at entry and exit to measure the edge captured.

As a starting point, imbalance ratio ≈ P(favorable outcome) / P(unfavorable outcome). If you believe 65% chance flat/up, 35% down, ratio ≈ 1.86:1. Adjust for risk tolerance. This is heuristic; precise optimization requires Monte Carlo analysis of your specific structure.

Bull market: Bullish unbalanced on pullbacks captures elevated post-drop put skew. Bear market: Bearish unbalanced on rallies, but be cautious as skew is extreme. Range-bound: Unbalanced toward range boundary expecting mean reversion. High vol: Reduce imbalance, widen both sides.

Create rules for bias determination (price vs MA, RSI, support/resistance proximity). Define imbalance levels for signal strength. Include skew filter (bullish unbalanced when skew > X percentile). Backtest with historical skew data to validate edge.

Contract ratio creates multiplicative effect on Greeks. 2:1 ratio doubles delta, theta, gamma, and vega from that side. Width imbalance affects Greeks proportionally but not multiplicatively. Ratio-based is more directionally aggressive with higher theta but also higher gamma risk.