What are you trying to tell, @MacBookProHo ?
Calendar secrets :-)
- Thread starter earth_imperator
- Start date
Results using different IV for LongPut at close on day 60:
Assuming Spot stays the same at expiration, like it was at entry.
Below are results for varying IV of the LongPut at expiration
(of course IV at expiration has no effect to the outcome,
it has an effect only if the option still das DTEs).
The below calc is using a conservative calculation as it treats
each leg for itself, ie. not as a real spread.
This means this is a pessimistic calculation. In reality the result
will be much better b/c it will be treated as a real 2-leg spread,
which means much reduced margin requirement --> a lesser cost basis --> a higher PnL%.
Code:
1) VerticalSpread
LP_IV_at_close PnL%@Sx=S0 MaxPnL% MinPnL%
-----------------------------------------------
75.00 (-50%) 6.23 6.23 -4.39
112.50 (-25%) 6.23 6.23 -4.39
150.00 6.23 6.23 -4.39
187.50 (+25%) 6.23 6.23 -4.39
225.00 (+50%) 6.23 6.23 -4.39
2) CalendarSpread
LP_IV_at_close PnL%@Sx=S0 MaxPnL% MinPnL%
-----------------------------------------------
75.00 (-50%) 5.40 5.40 -5.14
112.50 (-25%) 9.71 9.71 -1.26
150.00 14.53 14.53 3.08
187.50 (+25%) 19.83 19.83 7.84
225.00 (+50%) 25.60 25.60 13.04
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All the nasty comments here. Congratulations on doing the work of the industry that tries to kill us. It is brutal, finding your way in trading and we know the failure rate is >95% so please don't compound other people's misery.
I think both @newwurldmn and @ffs1001 are right. From a theoretical point of view, vol is positively related to DTE i.e. vol should rise with longer expiration but from a practical point of view, I do see phenomenons of profitable calendar spreads that involves selling a shorter expiration and buying a longer expiration option. Two reasons that imo contribute to this. One is the presence of vol. skew that's not explained by the difference between the IV of different calendar expirations even taking into account the market-moving event(s) that took place in the front expiration. Somehow the volatility of the expiration period with the market-moving event(s) albeit earnings, fed's rate announcement, CPI and etc. are overpriced so that once the event(s) blow(s) over, the price comes crashing down with a larger volatility crush than justified and if you happen to short that option, you can get a windfall. Why does it happen? Is it demand and supply or manipulations? Hard to say. I am not a quant and don't have enough resources or brainpower to do a study on it. Another factor that causes the faster crashing of price on the front short option is theta, ceteris paribus. One thing I find with the greeks is that they are all related and affect each other and never remain constant so even though one might think it's the fall of vol of the front that's faster than the vol of the back, it might be theta which also increases faster in the face of decreasing vol. which causes further drop in the option's price and this is especially prominent in the front expiration option.
No they are not the same thing and have entirely different PnL structure. Even though they are both betting on the underlying dropping price, the short call is a short position and just like any short position, it is subject to short-squeeze which could potentially result in a and gamma-squeeze whereas the long put is a long position where the most you are going to lose is the option price, opportunity cost aside. From greeks point of view, short call is a short delta, short volatility, short gamma, short vega and long theta whereas long put is long delta (with delta being negative), long gamma, long vega, long volatility and short theta.
Found a definition and example for Double Calendar options, though the text is the usual Zacks low quality 
, b/c for example what does it mean when it below says "you're profiting from the difference in the length of the options"? It's just stated so, but not explained.
https://finance.zacks.com/double-calendar-option-strategies-11766.html
"
Single Calendars
In a single calendar option, you buy and sell two options of the same type with different lives. Generally, you buy the longer-term option and you sell the shorter-term option. If you do this with call options, you can profit if the stock ends up anywhere near the price on the options. Behind the scenes, you're profiting from the difference in the length of the options.
Double Calendars
A double calendar spread is a combination of two calendar spreads -- one with puts and one with calls. The impact of combining two calendar spreads is to lengthen the time during which the spread generates a profitable trade. Instead of having a profit and loss graph that looks like an upside down V, a double calendar's profit-loss graph looks more like an "M" with two peaks -- a period in the middle where the trade remains profitable but less than at the peaks and two gradually sloping lines on either side.
Double Calendar Example
Consider a stock trading around $50 per share as of the end of July. In a double calendar, the trader would sell a put option at $48 for August and buy a put option for $48 for September. At the same time, he would also sell a $52 call for August and buy one for September. He can't lose more than the difference in price between the two pairs of options, but he can profit over a wide range of share prices.
"
Maybe here's a better text by TD Ameritrade:
"Double Calendars: The Low Volatility Trade with Two Peaks"
But: the author has set a wrong link to a previous related text, b/c it instead links just to itself, ie. recursion
Incompetent high-paid idiots everyhere w/o any quality control! I think the correct link is this one:
https://tickertape.tdameritrade.com/trading/calendar-spread-options-low-volatility-15885
The buggy link is this: https://tickertape.tdameritrade.com...pdate-traders-bracing-higher-volatility-97281
, b/c for example what does it mean when it below says "you're profiting from the difference in the length of the options"? It's just stated so, but not explained.https://finance.zacks.com/double-calendar-option-strategies-11766.html
"
Single Calendars
In a single calendar option, you buy and sell two options of the same type with different lives. Generally, you buy the longer-term option and you sell the shorter-term option. If you do this with call options, you can profit if the stock ends up anywhere near the price on the options. Behind the scenes, you're profiting from the difference in the length of the options.
Double Calendars
A double calendar spread is a combination of two calendar spreads -- one with puts and one with calls. The impact of combining two calendar spreads is to lengthen the time during which the spread generates a profitable trade. Instead of having a profit and loss graph that looks like an upside down V, a double calendar's profit-loss graph looks more like an "M" with two peaks -- a period in the middle where the trade remains profitable but less than at the peaks and two gradually sloping lines on either side.
Double Calendar Example
Consider a stock trading around $50 per share as of the end of July. In a double calendar, the trader would sell a put option at $48 for August and buy a put option for $48 for September. At the same time, he would also sell a $52 call for August and buy one for September. He can't lose more than the difference in price between the two pairs of options, but he can profit over a wide range of share prices.
"
Maybe here's a better text by TD Ameritrade:
"Double Calendars: The Low Volatility Trade with Two Peaks"
But: the author has set a wrong link to a previous related text, b/c it instead links just to itself, ie. recursion
Incompetent high-paid idiots everyhere w/o any quality control! I think the correct link is this one:
https://tickertape.tdameritrade.com/trading/calendar-spread-options-low-volatility-15885
The buggy link is this: https://tickertape.tdameritrade.com...pdate-traders-bracing-higher-volatility-97281
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It's all a big mess at TD Ameritrade: for example a text from 2017 references a text from 2019. How is that possible at all?!Maybe here's a better text by TD Ameritrade:
"Double Calendars: The Low Volatility Trade with Two Peaks"
But: the author has set a wrong link to a previous related text, b/c it instead links just to itself, ie. recursion
Incompetent high-paid idiots everyhere w/o any quality control! I think the correct link is this one:
https://tickertape.tdameritrade.com/trading/calendar-spread-options-low-volatility-15885
The buggy link is this: https://tickertape.tdameritrade.com...pdate-traders-bracing-higher-volatility-97281
And in some articles the images are missing... :-(
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Continuing my research on calendars...
Either my calcs are wrong or calendars seem to have the power to bring down the whole system...
Either my calcs are wrong or calendars seem to have the power to bring down the whole system...
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If you start visualizing vol as merely synthetic time it simplifies (somewhat) the causal trade offs you mentioned with theta decay. Ie, imagine a stock that never moves much at all, just slowly/surely marches slightly upwards over the course of a year in a very boring and predictable manner (low vol). Now imagine a highly volatile stock that jumps around a lot, up-down-up-down in a sporadic unpredictable manner (high vol). The low vol stock price will move much more slowly over time. If you were to compare absolute price movement between the two stocks, the high vol stock would move X amount in much less time than the low vol stock would move X (absolute movement not cumulative), or, the low vol stock needs *more time* to move the same amount as the high vol stock, therefore vol acts as a sort of ‘time-multiplier’ for price movement and can be thought of as a synthetic for time. Intuitively this kinda makes sense, to make a stock price move around more you can either increase the amount of time it is allowed to trade, or, increase the stocks vol over a set amount of time.
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