Calendar Spreads

This also means that you can’t exercise your long (back month) leg to offset the short (front month) leg if it happened to be ITM at its expiration. To a great extent you are naked without the back month’s hedge. You will have to cough up the cash for the short leg (if ITM) and in the meantime a whipsaw action might very well bring your long (back month) leg to OTM, at its expiry-- leaving you with a net loss. There is a reason why these ‘time-spreads’ are so “cheap”.

~B



Quote from yip1997:

Ben,

Why would European options make a calendar spread riskier than American type options? I thought European options didn't have the risk of early exercise. Can you elaborate on this issue?
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Quote from Bben1006:

This also means that you can’t exercise your long (back month) leg to offset the short (front month) leg if it happened to be ITM at its expiration. To a great extent you are naked without the back month’s hedge. You will have to cough up the cash for the short leg (if ITM) and in the meantime a whipsaw action might very well bring your long (back month) leg to OTM, at its expiry-- leaving you with a net loss. There is a reason why these ‘time-spreads’ are so “cheap”.

~B
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Ben, thats a good point that you bring up. A trader not familiar with the vix should be aware of this especially if their broker doesnt allow naked calls or they are putting on too large of a size. I do disagree however that their european style has anything to do with their "cheap" price but i will save my commentary on that issue to myself.

Furthermore, one can always offset the long leg instead of exercize(which is preferrable by the way, unless of course you cant sell calls naked or your margin wont allow it). Rolling the short leg up and out is the best way to play these in my opinion. Again, a major vix spike will be painful on your short strike due to the edge loss deep ITM and not so much the swing. One order rolls can be done easily to alleviate any margin pain. Hence, my suggestion to go as high as possible for a comparable credit even diagonalize if possible. I personally wouldnt sell anything lower than a 20 strike as i much rather be OTM than ITM with these plays.
 
OK...
Here we are shortly before expiration on the Jul 20 calls. The VIX is at 18.00 (-.64). The b/a is .15-.25. I sold the 20's for .40 and want to buy back at .15 - not unreasonable but the mm's are playing their games and keeping prices up until the very f'n end.

I vote that the CBOE should go electronic.
:D

Update: 3:57pm. b/a is .10-.20. Maybe I'll get filled at the mid???
Maybe not, VIX now at 18.12.:mad:
 
You do have to be very careful with these options. The European style really throws a wrench into your plans, so don't be on vacation the first Tuesday prior to Expiry!!

You should also be aware of the settlement value (VRO) vs VIX closing value. OX help desk didn't know how to calculate or where to find it. So I called CBOE, they also had trouble finding it and referred me to 888options.com for the quote.

Someone's going to get burned badly on VIX at some point, especially if they don't read this message board :)

As for my trade, I did roll the Jul 17.5 to Aug 17.5
 
gad...look at that VIX down 3pts:eek:
Yesterday I closed out the put OIH calendar and have just the call cal on...but still in the red because the vix now droping the value of my longs have droped. wow now up 20 on the spx..yeah:D
 
Quote from RichardRimes: 7/19

gad...look at that VIX down 3pts:eek:
Yesterday I closed out the put OIH calendar and have just the call cal on...but still in the red because the vix now dropping the value of my longs have dropped. wow now up 20 on the spx..yeah:D
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In tallying up this week my Call calendar in OIH could not have come at a worse time.
on 7/12 BTO Jan 150Calls X 25 @ 16 and
STO Jul 150Calls X 20 @ 2.95

I'm basically very under water in OIH at this time. right now the plan is to sell 25 contracts of Aug 145's to try and gain some premium.

I did close out the put calendar with a nice gain. Hopefully I won't give it all back with this call calendar. The chart shows a low of 130 which hasn't been seen since March. The next low is 105 (last oct). I understand there are a lot of puts out on OIH as it did break support in the 132 range however hoping this is overdone and some bounce next week gives me an opportunity to sell the 145's at a reasonable price.
 
woke up middle of nite and unable to go back to sleep thinking of OIH. When that happens I have too much at risk in one position so have decided to sell 5 longs. Then depending on what OIH does look at selling the Aug 140 calls creating a diagonal and because it would not add any additional maintanene requirements sell the 125/115 Aug Put spread.

I can not tell right now whether I am just early or wrong or both. If in the next 4 weeks OIH continues to tank then I am both and will get completely out.

I need to remember that call calendars are often tougher than put calendars to handle.
 
Quote from RichardRimes:

In tallying up this week my Call calendar in OIH could not have come at a worse time.
on 7/12 BTO Jan 150Calls X 25 @ 16 and
STO Jul 150Calls X 20 @ 2.95

I'm basically very under water in OIH at this time. right now the plan is to sell 25 contracts of Aug 145's to try and gain some premium.

I did close out the put calendar with a nice gain. Hopefully I won't give it all back with this call calendar. The chart shows a low of 130 which hasn't been seen since March. The next low is 105 (last oct). I understand there are a lot of puts out on OIH as it did break support in the 132 range however hoping this is overdone and some bounce next week gives me an opportunity to sell the 145's at a reasonable price.
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I don't mean to sound like I'm second guessing your strategy, but 2.95/16 sounds like a huge difference. My OIH call position isnt doing that hot either, I had a Oct 150, the short has been rolled down to 145 already.
 
You right...things have really changed since I placed the trade. At the time vol's were high and two weeks from July expiration I could have done an Aug/Dec and received over $5 for the Aug short, however I was a bit greedy and wanted to grab the July credit thinking I could still get a nice credit for Aug. The movement of the stock strongly to the dowside took away the Aug credit I had assumed I could still get. Now it is a very poor trade... thats why I'm looking at ways to possibly salvaging it before I just close it for the loss.
 
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