I sold a S122/S123 spread today with 14-Oct SPY calls this morning for a credit of 0.20. SPY was trading around $118.65 at the time. $122 is about at the top of the trading range we’ve been in since August.
The put spread that was equidistant from market price, the S115/S114, was offering a significantly lower credit—0.14. This is not surprising because of the typical volatility skew on OTM puts, but from an overall risk standpoint of market dynamics this seems backwards. Because of the “stairs up, elevator down” behavior of markets, the put credit spread seems like a higher risk than the call spread, and yet the return is lower.
Normally risk and return are well correlated. Is selling OTM put vertical spreads an especially poor investment, or do call spreads offer a better than average risk-return?