Calendar spreads OPTION opportunities

[Stymie]

I would not recommend calendar spreads - they move slow and they have high transaction costs and wide bid/ask spreads so the chance of making money either way is slim. The brokers like them.

 

[Trading Education Buyer]

I would not recommend calendar spreads - they move slow and they have high transaction costs and wide bid/ask spreads so the chance of making money either way is slim. The brokers like them.

https://www.elitetrader.com/et/threads/the-edge-of-premium-decay.304909/#post-4369707

 

[Trading Education Buyer]

Take a look at this support

No reason why you can not make money writing , with two months to expiry , below the support .

Dax GERMAN 30

9900 put dec 29.5 to buy

Jan 9950 puts .... 89.2 to sell

Chances are it will go to <50 on expiry in or 3 weeks , probability trade.

potential profit 20.5 less costs to close

Trade is moving into profit now and over next 10 days

 

[Trading Education Buyer]

24 out of 27 months , it made ticks on puts calendars but lost in 3 out of 27

89% win rate

Now let us try the call version , and see if it adds to some advantage

Real traders don't sit at a screen monitoring every tick , jumping in and out of trades , that is forex idiots.

Good traders can make 1 good trade a month , make 30 ticks a month $30 per pip and it gives a nice living , but not in forex , because that is only possible in imagination in forex .

You don't really need more than 20k to make $900 per month .

You need discipline , mindset and very good 12 " between the ears or a really good strategy and less in the coconut.

This trade will make 30 ticks

 

[Trading Education Buyer]

10 points profit now

http://www.moneyshow.com/articles.asp?aid=optionsidea-22355

 

[Trading Education Buyer]

I would not recommend calendar spreads - they move slow and they have high transaction costs and wide bid/ask spreads so the chance of making money either way is slim. The brokers like them.

You are probably correct , but this is now in profit and 43 to buy back = 17 profit now

 

[Trading Education Buyer]

target achieved 30 points

I would not recommend calendar spreads - they move slow and they have high transaction costs and wide bid/ask spreads so the chance of making money either way is slim. The brokers like them.

profit target achieved 30 points , bid hit

 

[ironchef]

The calendar spread is deployed in a sideways market to take advantage of the larger time decay in the front month. The risk to the calendar spread is that the market moves to quickly or goes too far from the short strike in either direction.
The risk is limited by buying a long dated option and the profitability is limited.
The suggested trade is betting that the market movements will be greater than the daily time decay in the front month versus the back month. So the calendar spread is sold instead of bought. The whole trade is taken off either before or at the expiry of the front month contract.
The common trade is to buy the spread and earn the theta decay advantage with no view.

If I wanted to bet for a big move, I would just buy an option in the direction I like and have unlimited upside with the ability to exit in the underlying contract After hours. I would accept the time decay of the option and assess the potential payoffs against the price paid for the contract.

Stymie,

I need some advice:

I don't trade calendar (or more general, diagonal) spreads but sometimes after I bought a call, a little later I sold a nearer term call to help pay for the premium of the longer call. So I legged into a calendar spread.

In general are the premiums I collected worth the risks of losing big profit potentials? And finally, is doing this a good idea or a dumb idea?

Thanks.

Trading Education Buyer, do you have any comments?

 

[Trading Education Buyer]

Stymie,

I need some advice:

I don't trade calendar (or more general, diagonal) spreads but sometimes after I bought a call, a little later I sold a nearer term call to help pay for the premium of the longer call. So I legged into a calendar spread.

In general are the premiums I collected worth the risks of losing big profit potentials? And finally, is doing this a good idea or a dumb idea?

Thanks.

Trading Education Buyer, do you have any comments?

I tend to sell same month at higher strike. , nothing wrong if you bought orignal below support and sold above support.

 

[Trading Education Buyer]

The current market is: Dec9900 = 7 and Jan9950 is 74 so if you did trade your prices listed above, you are down 22.5 in the front month with higher time decay and up 15.2 in the back month for a net loss of 7.3 ticks. This current mark to market for your strategy is consistent with what you would expect on a calendar spread. This is why most people would buy the calendar spread instead of doing a reverse calendar spread or selling the spread. This mark to market does not include the cost of commissions which would double your loss at this point or after 11 days have passed. Not very exciting but then calendar spreads move slowly ...

Reverse calendar spread are trend biased , money is made from delta and theta , they can be profitable after drops in stock market indices to oversold areas .They can be very useful when extreme volatility has broken out and premiums are high.


You also have to have some fundamental and technical bias to your trades , this is not in the option formula.Also bear in mind ,market ranges 80% of the time and looking for trends is often looking for needle in a haystack.