Yes.....
Calendar spreads
- Thread starter ChrisM
- Start date
Yes.....
Both.
ChrisM,
By using a vertical calendar spread you are simply change the profit curve. For example on long calendars, if you sell the ATM and buy a higher strike far month option, you might be able to do this spread for a credit or small debit. You also start the position out delta negative so in that scenario, you would have a negative bias to begin with. And the inverse would be true of short calendars. So basically it just changes the amount of your debit and possibly into a credit. You would alos have to put up more margin in a retail account.
One good strategy might be to sell a front month strangle. Say you have stock XYZ at $50. Sell the nov 45/55 strangle and buy the july 50 straddle. Then every month keep selling the strangle against the back month straddle. Your position is always hedged and your taking in front month premium. You might have to buy some stock if it breaks out to the upside as well as sell some stock if it breaks down a little bit but it won't be much. This is also a great strategy if there is a lot of activity in the front month and heavy skew there vs the back months. So between now and July you could sell 9 strangles leading up to July expiration. I would let the back month straddle run if the stock makes a big move one way or the other. This is a great strategy and guys on the floor make a lot of money doing this. It's also fairly safe. The best plays for this would be stocks with very low vol and are not moving much. Sine you will have a lot of vega in the back months, you will benefit from any pop in the vol.
Man, why am I giving away all these secret strategies. LOL.
I could go on and on and on and on with all the various strategies I know but seriously, do you guys really want to have a tax problem with the IRS with all the money you would be making. LOL.
Mav,
is the presented strategy almost exactly opposite to the one recommended by you earlier in this thread (short calendar) ?
I was testing vertical/horizontals due to the fact, that sometimes simple verticals do not give decent reward/risk ratio. This way the bet might be less expensive, but I do not keep enough data to see how much far month can move in different scenarios.
I know there are models, but at this point I would agree with Mr. Ruggiero`s opinion expressed in one of "Futures" magazines that real data can change dramatically big picture.
Regarding your secret strategies, I wanted to share my secret strategy with you, but I had no chance to get high opinion about that from you, so had to give it up
At the same time I work hard on your secrets thus after applying some improvements, these strategies will become secret back again and then you are welcome to use them. LOL
About problems with IRS making so much money I think (and I believe I am not alone on ET with such opinion) that no matter how serious is this concern, I would take the risk, and even more to say - it would be my pleasure to deal with this problem.
Quote from ChrisM:
Mav,
is the presented strategy almost exactly opposite to the one recommended by you earlier in this thread (short calendar) ?
I was testing vertical/horizontals due to the fact, that sometimes simple verticals do not give decent reward/risk ratio. This way the bet might be less expensive, but I do not keep enough data to see how much far month can move in different scenarios.
I know there are models, but at this point I would agree with Mr. Ruggiero`s opinion expressed in one of "Futures" magazines that real data can change dramatically big picture.
Regarding your secret strategies, I wanted to share my secret strategy with you, but I had no chance to get high opinion about that from you, so had to give it up
At the same time I work hard on your secrets thus after applying some improvements, these strategies will become secret back again and then you are welcome to use them. LOL
About problems with IRS making so much money I think (and I believe I am not alone on ET with such opinion) that no matter how serious is this concern, I would take the risk, and even more to say - it would be my pleasure to deal with this problem.
Yes, this is different from the short calendar where you would be long the front month and short the back month. There are so many ways you can set these spreads up. I like to use straddles and strangles and do all sorts of swaps with them between the front month and back months. I prefer to be long the front month and short back month when premium is very high to catch the premium implosion. But whose to say you could not buy the front month straddle, sell the front month strangle and sell the back month straddle? I call this my straddle/strangle/straddle swap. So many ways to make money man, so few tax shelters. LOL.
Looks like you prefer to catch implosions and explosions right ?
I usually trade ranges, so there is much less news and data to follow and market for most of the time does not do anything, so my strategies work, but maybe I miss something important in my trading style ?
I don`t know what is the percentage of being right vs. being wrong doing such breakouts and what kind of reward/risk ratio you can achieve doing this. Also, I understand that you need large diversification over many stocks ?
IMHO (and I expect many disagree) the option strategies do not give you real edge, but the way how you apply them to market conditions and how you adjust them. At many times adjustments are more important than strategy itself.
Chris,
While I may risk incuring Maverick's wrath, I happen to agree with a lot of what you just said, or at least as it relates to a point I've made before, but which, I fear, continues to get short shrift. That is the importance of trading a strategy that is consistent with one's personality. While this applies to any form of trading, it is, in my opinion, particularly important with trading options.
Many options traders seem to apply myriad different positions to various markets because that is what the "playbook" calls for. They run their scans, find skews or especially high or low relative IV levels, and put on the "right" position. They then wonder why the position didn't work out as it was supposed to.
The answer usually comes down to one of two things. Either they didn't fully understand the nuances of the position they traded, the synthetic relationships, and how and when to adjust in the face of changing market conditions. Or they "fought" the position and didn't allow it to work out because trading it was psychologically difficult (i.e. they were long theta and delta negative and couldn't bear the prospect of losing money while the underlying and the rest of the market went up).
Bottom-line, they were trading positions that they should have avoided until such time as they developed a better understanding of the strategy or themselves.
Hence, while I acknowledge the perceived drawbacks of relying on a narrow set of strategies that may not work in all market conditions, I submit that developing a deep understanding of how to trade a strategy or two profitably is far preferable to the alternative. On the other hand, those who've evidently mastered everything under the sun (Mav?) is in an enviable position and my hats off to them. But since such profound wisdom is probably beyond me at this point (you can't teach an old dog too many new tricks, after all), I think I'll just stick to trying to hit dull singles on a regular basis with my boring niche approach.
HD
While I may risk incuring Maverick's wrath, I happen to agree with a lot of what you just said, or at least as it relates to a point I've made before, but which, I fear, continues to get short shrift. That is the importance of trading a strategy that is consistent with one's personality. While this applies to any form of trading, it is, in my opinion, particularly important with trading options.
Many options traders seem to apply myriad different positions to various markets because that is what the "playbook" calls for. They run their scans, find skews or especially high or low relative IV levels, and put on the "right" position. They then wonder why the position didn't work out as it was supposed to.
The answer usually comes down to one of two things. Either they didn't fully understand the nuances of the position they traded, the synthetic relationships, and how and when to adjust in the face of changing market conditions. Or they "fought" the position and didn't allow it to work out because trading it was psychologically difficult (i.e. they were long theta and delta negative and couldn't bear the prospect of losing money while the underlying and the rest of the market went up).
Bottom-line, they were trading positions that they should have avoided until such time as they developed a better understanding of the strategy or themselves.
Hence, while I acknowledge the perceived drawbacks of relying on a narrow set of strategies that may not work in all market conditions, I submit that developing a deep understanding of how to trade a strategy or two profitably is far preferable to the alternative. On the other hand, those who've evidently mastered everything under the sun (Mav?) is in an enviable position and my hats off to them. But since such profound wisdom is probably beyond me at this point (you can't teach an old dog too many new tricks, after all), I think I'll just stick to trying to hit dull singles on a regular basis with my boring niche approach.
HD
Well guys, I have some good news for you and some bad news. First I will give you the good news. There are no bad option strategies. OK, now for the bad news, there are no good option strategies either. However, there are good and bad traders. I really can't make it any more simple then this.