Calendar Spreads

Donna,

In this case I put all of them on at the same time with a neutral view of XLE. I have others where I started with 2 or 3 calendars and added additional calendar(s) in the direction the stock moved. I have more calendars in the XLE position partially because of the 1 point strikes and 6 is the most I would have active at one time. Other positions have a max of 5, 4, or 3. I look at the risk graphs and they will tell me when it doesn't help the position to add an additional calendar.

Tim
 
I guess what I'm trying to figure out is ...you must feel a greater chance of profitability on multiple calendars at different strikes than say a larger number of contracts on one or two strikes? thx
 
If the underlying doesn't move around too much, then yes it is conceivable. It is more of a theta play.


Quote from RichardRimes:

I guess what I'm trying to figure out is ...you must feel a greater chance of profitability on multiple calendars at different strikes than say a larger number of contracts on one or two strikes? thx
More...
 
Quote from RichardRimes:

I guess what I'm trying to figure out is ...you must feel a greater chance of profitability on multiple calendars at different strikes than say a larger number of contracts on one or two strikes? thx
More...

RR,

I don't think it is wise to open multiple calendars at the same time, but I will add calendar based on market condition when appropriate.
 
WHY do you fee it not wise to open multiple calendar's at the same time? I certainly agree that the optimum time to open a calendar is when vols are lowish and you expect them to increase as well as picking a relatively stable (IV) stock. I would think the reason Tim opened calendars at multiple points was to increase his chance to be profitable and he wasn't sure exactly where the "sweet" spot might be. Just speaking for myself I would tend to have more contracts and put them on at different times, but just trying to understand others take on the different ways to use calendars as a trading vehicle.
 
Quote from RichardRimes:

WHY do you fee it not wise to open multiple calendar's at the same time? I certainly agree that the optimum time to open a calendar is when vols are lowish and you expect them to increase as well as picking a relatively stable (IV) stock. I would think the reason Tim opened calendars at multiple points was to increase his chance to be profitable and he wasn't sure exactly where the "sweet" spot might be. Just speaking for myself I would tend to have more contracts and put them on at different times, but just trying to understand others take on the different ways to use calendars as a trading vehicle.
More...

RR,

Calendar has a very special characteristics by itself. The profit zone is small, and the max profit occurs at strike. The calendar is a IV play and not a strong directional bet. It is best to put the strike at the money (or very close to it).

If you put a calendar far away from the money, what does it mean? What exactly do you want to achieve? I don't see the purpose of using a FOTM calendar.

However, suppose you opened a calendar when the spot was at x. When the spot moves away from x, and it is currently say at y, since the comfort zone for calendar is not very wide, your original calendar might be at a certain risk (delta, theta or vega), and you want to hedge against or balance the portfolio risk by adding another calendar with strikes at around y. I can see the adjustment benefit by adding a new calendar, but I don't see the benefit of adding many calendars in the first place.
 
The only fallacy I see with that is you are paying close to the highest for that calendar at y. Now it will be ok if the underlying stays at or around y at expiration. If not, you'll have to close the calendar at y for a lot less when the underlying move away from y back to x or beyond.

IOW, you are trying to chase the underlying, and it will be ok if it doesn't move around much, which might not be enticing enough to open the calendar in the first place.

Quote from yip1997:

RR,

Calendar has a very special characteristics by itself. The profit zone is small, and the max profit occurs at strike. The calendar is a IV play and not a strong directional bet. It is best to put the strike at the money (or very close to it).

If you put a calendar far away from the money, what does it mean? What exactly do you want to achieve? I don't see the purpose of using a FOTM calendar.

However, suppose you opened a calendar when the spot was at x. When the spot moves away from x, and it is currently say at y, since the comfort zone for calendar is not very wide, your original calendar might be at a certain risk (delta, theta or vega), and you want to hedge against or balance the portfolio risk by adding another calendar with strikes at around y. I can see the adjustment benefit by adding a new calendar, but I don't see the benefit of adding many calendars in the first place.
More...
 
Quote from RCMLLC:

The only fallacy I see with that is you are paying close to the highest for that calendar at y. Now it will be ok if the underlying stays at or around y at expiration. If not, you'll have to close the calendar at y for a lot less when the underlying move away from y back to x or beyond.

IOW, you are trying to chase the underlying, and it will be ok if it doesn't move around much, which might not be enticing enough to open the calendar in the first place.
More...

I think your approach sounds a bit more directional in nature than a trader who may want to run a short theta/long vega book and hedge out any delta risk with the underlying..

If your primary objective is to run a short theta book and delta hedge,there is nothing wrong with adding additional calenders.
 
Terry's Tips has multiple calendars going at the same time. He adds new ones as the stock moves. I think his rule is that if the underlying gets 10% away from a spread he will roll it to something ATM. Sometimes it seems like he is chasing the market and losing money.

I'm becoming a bit disappointed with calendars. It seems the parameters are somewhat conflicting. That is you want high volatility in the near months to sell premium, but at the same time you don't want it to move much from the long term strike price.

BTW, I closed my XLE 55 put calendar a week or two ago, for about .60 profit overall.
 
Quote from Eliot Hosewater:
....I'm becoming a bit disappointed with calendars. It seems the parameters are somewhat conflicting. That is you want high volatility in the near months to sell premium, but at the same time you don't want it to move much from the long term strike price. [/B]
More...
Eliot,
Here is a link to a posting by Michael Catolico (in a similar Yahoo thread), which I think says it all,
http://finance.groups.yahoo.com/group/OptionClub/message/5362

Regards,
~B
 
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