Calendar secrets :-)

Overnight · Sep 15, 2022

ffs1001 said:
...do you recommend that I should have bought long Puts in the SPX on Mon evening because the market fell -4.5% on Tue?!...

How does one buy a long put? Is that the same as selling a short call? I ask merely for information.

earth_imperator · Sep 15, 2022

Overnight said:
How does one buy a long put? Is that the same as selling a short call? I ask merely for information.

Buying a Long option (Call or Put) is very similar to buying a Long Stock.
One just has to fill some more data fields like the expiration date and strike.
Long Put is different from Short Call, though both are bearish.

Overnight · Sep 15, 2022

earth_imperator said:
Buying a Long option (Call or Put) is very similar to buying a Long Stock.
One just has to fill some more data fields like the expiration date and strike.
Long Put is different from Short Call, though both are bearish.

I was picking on the redundant language. Should just say buy put. You can't sell a long put. You just sell a put.

Just as you cannot buy a long stock. You simply buy the stock, then you are long IN the stock.

earth_imperator · Sep 15, 2022

Overnight said:
I was picking on the redundant language. Should just say buy put. You can't sell a long put. You just sell a put.

Just as you cannot buy a long stock. You simply buy the stock, then you are long IN the stock.

Ok. my bad, didn't read the full thread... :-)

ondafringe · Sep 15, 2022

Overnight said:
How does one buy a long put? Is that the same as selling a short call? I ask merely for information.

Really simple. You buy a put. You now have a long put. Your neighbor hears about your options prowess -- but doesn't have an options account -- and makes a deal to buy the put from you on the off-the-books side market. Your neighbor has now bought a long put and is now long a long put.

And you thought it couldn't be done.

Overnight · Sep 15, 2022

ondafringe said:
...Your neighbor has now bought a long put and is now long a long put.

And you thought it couldn't be done.

Can I be short a long put? Can I be short a short call? You do know I am just messing with the nomenclature, right? I was just nickpicking?

newwurldmn · Sep 15, 2022

If that’s how you feel, I’m okay with it. It’s no skin off my back.

ffs1001 said:
No worries dude. In my 3-4 years here, having read hundreds of threads, thousands of posts by quants claiming to be able to decipher the vol surface, I have yet to see a single example - a single example, I tell you - where said quant can show a trade (historical is fine, it doesn't need to be in real-time) where they used this clever vol surface understanding and knowledge to set up and execute a trade for profit.

I've long suspected that all this clever talk is nothing but intellectual masturbation.

PS - I'll just get back to setting up my next dbl cal trade, cos Dest thinks they're great.

earth_imperator · Sep 15, 2022

For an easy understanding of the topic in this thread:

See these two postings for the example data set for the said 2-leg Put spread:
https://www.elitetrader.com/et/threads/calendar-secrets.369662/page-2#post-5676557
https://www.elitetrader.com/et/threads/calendar-secrets.369662/page-3#post-5676615

A quick proof ot the claimed discovery:

Assume Spot and IV stay the same at expiration like they were at entry.
Then, a LongPut will be worth $0 at expiration.
But now assume using a LongPut with a longer DTE instead. Ie. normal DTE is 60, and we use now a longer DTE 90 for the LongPut.
But still we will close the whole position on the shorter DTE 60.
Now comes the interesting part:
At the expiration of the ShortPut (ie. after 60 days) the LongPut (that did cost us 22.8528) will be worth 11.6485 (b/c it has another 30 days till its own expiration):
Pr_at_SP_expiry=11.6485 Net_Pr=11.6485 Used_Pr=11.2043 Pr_for_SP_DTE=18.0278 Saved_LP_Pr=6.8235(37.85%))

Ie. normally using a DTE 60 LongPut would have costed 18.0278, but using DTE 90 instead costs us in the same time only 11.2043. This is 37.85% cheaper than normal (18.0278). Ie. we save that much Premium for the LongPut side of the spread. And this saving of courses reduces our cost basis, which then of course means increasing the PnL%.

Q.E.D.

PS: the calculation above is even a pessimistic one, meanng in reality the broker system recognizes (understands) that it's a spread and reduces the margin accordingly, which then of course means even higher PnL% than in the above calc.

destriero · Sep 15, 2022

earth_imperator said:

Most of you expert traders and academicians have better tools and test environments and literature than me.
So, can any of you experts confirm my finding as described in this posting along with an example data set?

Just for the historical record: here are the Q&D crypto-like

results of my test program.
Background story: I added calendar spreads just today to my "vertical put spread" program,
and promptly made the said observation and discovery.
But, as said, everything is very new / very fresh, so I just hope it's bug-free.
As a control instance I'm calling you experts out there to test/verify/confirm this finding.

Below, I'm focusing on these 2 outputs (PnL% for Spot and IV same at expiration of the ShortPut):
Sx_at_SP_S=100.0000(dPct=0.00 PL=5.8656 PLpct=6.23)
Sx_at_SP_S=100.0000(dPct=0.00 PL=12.2449 PLpct=12.37)

As can be seen: PnL 6.23% vs. 12.37% is of course a very significant result... Q.E.D. IMHO

Code:

PgmArgs(16): ./yfapi_get_options_data.exe CSP+LP_calc 1 3 0 100 100 60 100 -1 150 100 60 90 -1 150  >$FN
fErr=0 mfac=1.0000 SP(S=100.0000 DTE=60.00 K=100.0000 Pr=23.8934 IV=150.0000) LP(S=100.0000 DTE=60.00 K=90.0000 Pr=18.0278 IV=150.0000 --> Pr_at_SP_expiry=0.0000 Net_Pr=18.0278 Used_Pr=18.0278 Pr_for_SP_DTE=18.0278 Saved_LP_Pr=0.0000(0.00%)) :
  SM=0 CashAcct/3 PutVerticalBullSpread NetPr=5.8656(Credit) CashReq=10.0000 CBraw=94.1344 CB=94.1344 NetAssReq=76.1066 MaxPL=5.8656(6.23% @Sx>=SP.K(100.00)) MinPL=-4.1344(-4.39% @Sx<=LP.K(90.00)) WLrat=1.42 LWrat=0.70 WIrat=16.05 LIrat=-22.77 BE(Sx=94.1344(-5.87%)) S0(PL=5.8656(6.23% Mon=3.11% Ann=44.44%) Irat=16.05) SL_Score=168.77
  Sx_at_0=0.0000(dPct=-100.00 PL=-4.1344 PLpct=-4.39)
  Sx_at_LP_K=90.0000(dPct=-10.00 PL=-4.1344 PLpct=-4.39)
  Sx_at_(LP_K+Sx_at_BE)/2=92.0672(dPct=-7.93 PL=-2.0672 PLpct=-2.20)
  Sx_at_BE=94.1344(dPct=-5.87 PL=0.0000 PLpct=0.00)
  (Sx_at_BE+SP_K)/2=97.0672(dPct=-2.93 PL=2.9328 PLpct=3.12)
  Sx_at_m1SD=86.5731(dPct=-13.43 PL=-4.1344 PLpct=-4.39)
  Sx_at_SP_S=100.0000(dPct=0.00 PL=5.8656 PLpct=6.23)
  Sx_at_p1SD=115.5093(dPct=15.51 PL=5.8656 PLpct=6.23)
  Sx_for_PLpct_50=100.0000(dPct=0.00 PL=5.8656 PLpct=6.23)
  Sx_at_SP_K=100.0000(dPct=0.00 PL=5.8656 PLpct=6.23)
  Sx_at_SP_K*1.25=125.0000(dPct=25.00 PL=5.8656 PLpct=6.23)


PgmArgs(16): ./yfapi_get_options_data.exe CSP+LP_calc 1 3 0 100 100 60 100 -1 150 100 90 90 -1 150  >$FN
fErr=0 mfac=1.0000 SP(S=100.0000 DTE=60.00 K=100.0000 Pr=23.8934 IV=150.0000) LP(S=100.0000 DTE=90.00 K=90.0000 Pr=22.8528 IV=150.0000 --> Pr_at_SP_expiry=11.6485 Net_Pr=11.6485 Used_Pr=11.2043 Pr_for_SP_DTE=18.0278 Saved_LP_Pr=6.8235(37.85%)) :
  SM=0 CashAcct/3 PutVerticalBullSpread NetPr=12.2449(Credit) CashReq=10.0000 CBraw=98.9594 CB=98.9594 NetAssReq=76.1066 MaxPL=12.2449(12.37% @Sx>=SP.K(100.00)) MinPL=2.2449(2.27% @Sx<=LP.K(90.00)) WLrat=5.45 LWrat=0.18 WIrat=8.08 LIrat=44.08 BE(Sx=0.0000(-100.00%)) S0(PL=12.2449(12.37% Mon=6.09% Ann=103.33%) Irat=8.08) SL_Score=209.01
  Sx_at_0=0.0000(dPct=-100.00 PL=2.2449 PLpct=2.27)
  Sx_at_LP_K=90.0000(dPct=-10.00 PL=2.2449 PLpct=2.27)
  Sx_at_(LP_K+Sx_at_BE)/2=45.0000(dPct=-55.00 PL=2.2449 PLpct=2.27)
  Sx_at_BE=0.0000(dPct=-100.00 PL=2.2449 PLpct=2.27)
  (Sx_at_BE+SP_K)/2=50.0000(dPct=-50.00 PL=2.2449 PLpct=2.27)
  Sx_at_m1SD=86.5731(dPct=-13.43 PL=2.2449 PLpct=2.27)
  Sx_at_SP_S=100.0000(dPct=0.00 PL=12.2449 PLpct=12.37)
  Sx_at_p1SD=115.5093(dPct=15.51 PL=12.2449 PLpct=12.37)
  Sx_for_PLpct_50=100.0000(dPct=0.00 PL=12.2449 PLpct=12.37)
  Sx_at_SP_K=100.0000(dPct=0.00 PL=12.2449 PLpct=12.37)
  Sx_at_SP_K*1.25=125.0000(dPct=25.00 PL=12.2449 PLpct=12.37)

Drop the vol in the calendar to 100% at day 60 and see what happens. You are such a clown.

earth_imperator · Sep 15, 2022

destriero said:
Drop the vol in the calendar to 100% at day 60 and see what happens. You are such a clown.

This is a different situation.
You cannot make such arbitrary adjustments in such comparisons.
And: a higher LongPut IV instead then gives a higher PnL%. So what?