Calendar Spreads

Interesting. I've been doing calenders after reading Greg Donio's
writings on them. He recommends OOM calenders with a debit of $1.25 or less. He also says not to let the spread go into the money. It's directional, but I've had some success with them.

I've been using individual stocks but I plan to begin working with indexes.

Will need to look at Michael's strategy of doing calenders ITM.
 
May I suggest we also look at Put Calendars. There tends to be a slant toward Call Calendars... or upward moving positions.

The Put Calendar is one of the most powerful option strategies, in my opinion. When properly placed... the greeks are in your favor... especialy VEGA.

Murray
 
It's not the trade you really want to see... as any trade which favors the option strategy will make money. What you really want to ask is "why is the Put Calendar a more favorable options trade than it's counter-part the Call Calendar".

If you analyze Calendar trades, you realize that increasing volatility helps the position. Generally speaking, when price securites move up in price, volatility tends to bleed out of the positon. Conversely, volatiilty tends to increase when securities go down.

Since increased volatility increases your probability of success as well as overall profit, the Put Calendar is a much more desired options strategy than it's counterpart. What is difficult for traders to do... is train themselves to look for stocks falling.

Also, it is imperative that you attempt to enter all Calendars, Put or Call, when historical implied volatility levels are low. This can be found at: www.ivolatility.com

Hope this sheds some insights in the Put vs. Call Calendar option strategy.

Murray
 
Yes, a speck of light is coming through. Makes sense especially since the vol on the put side tends to be higher than the call side.

How far from expiration do you place your typical position?
 
Murray, glad you decided to join the forum.

I'm a calendar spread neophyte. Could you be more specific about how volatility helps a calendar spread. It doesn't sound like you're talking about front month volatility versus back month volatility, but instead just the volatility at any given point in time (for example, when the position is initiated).




Quote from Sailing:

It's not the trade you really want to see... as any trade which favors the option strategy will make money. What you really want to ask is "why is the Put Calendar a more favorable options trade than it's counter-part the Call Calendar".

If you analyze Calendar trades, you realize that increasing volatility helps the position. Generally speaking, when price securites move up in price, volatility tends to bleed out of the positon. Conversely, volatiilty tends to increase when securities go down.

Since increased volatility increases your probability of success as well as overall profit, the Put Calendar is a much more desired options strategy than it's counterpart. What is difficult for traders to do... is train themselves to look for stocks falling.

Also, it is imperative that you attempt to enter all Calendars, Put or Call, when historical implied volatility levels are low. This can be found at: www.ivolatility.com

Hope this sheds some insights in the Put vs. Call Calendar option strategy.

Murray
More...
 
Tough getting anything done around the house... but a little insight.

Many of you have heard of Terrystips... and all the associated comments around his trading calendar spreads. Although I agree with some of the comments... the site has been a great learning experience for those who have studied his previous 3 years of posting.

It's not the win/loss or profit/loss which I'm referring to... but it's his analysis of his positions... and why the did or didn't work.

I will give Terry his credit due... to his openess and honesty in posting his real trades and follow up reports. He is one of the few who actually allow you to see his accounts and follow them online daily. In fact, I don't know of any others.

Although Terry's philsophy and trading style has changed during the past three years... I would hope so would have everyones. You learn from what you did in the past.. and make adjustments accordingly. I agree that many of his other strategies were... not risk managed, but the strategies themselves were mean to be that way. We could go on and on... but for what it's worth... Terry did provide real, live, market performance and analysis unlike anyone else I have been associatd with.

For the record... Terry made me a lot of money.

Attached is a word.doc which Andy asked about concerning volatility. I also included ratioed and diagonal examples. In no way do I recommend this position... but the strike prices worked well for the example.

Enjoy,

Murray
 

Attachments

looks like every type of the spread journal concentrates on the Index as a trading entity. Is this a liquidity issue ? Why to narrow search for the best candidates to so few (and so similar) choices ? There is a good size of stocks universe (liquid , low spread , high nominals) that one can find better candidates according to his criteria ( vols ratios , TA or whatever). Its just hard for me to belive that SPX or other index is ALWAYS,MONTH-AFTER-MONTH,AT-ANY-CONDITIONS is the best candidate for credit spread , debit spread or calendar spread.
 
Good luck with the journal and I look forward to contributing. I trade calendars rarely but in unique situations I think they are great. I agree with IV TRADER though that I love calendars on individual stocks with unique skews rather than the indexes. I have had success takaing directional picks on stocks prior to FDA announcements using deep OTM calendars. Due to the skew the cost is little and if I am wrong no big loss. If I am right the returns can be 30% to 100%. Just one example of how they can be used and did 5 or 6 last year with great success. Nothing really this year but would like to participate here when I see a good skew and some news pending.

Lots of stocks have better skews than the indexes so for calendars I will focus on stocks.

Phil
 
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