Calendar Spreads

Stocks or Indexes.... ????

The right answer lies in that fact that your position moves to your target area sometime within your time frame.... be it the stock or the security.

I tend to agree with Phil... since volatiilty is a huge part of the success of Calendar spreads... there are more candidates of the securities nature than indexes.

On the other hand... indexes do lend a more predictable movement.... without earnings reports... and major events.

One rule I feel that is important.... is the amount of premium you can take in on the short positoin relative to the long position.

I always check the ATM or close as possible to see if I can get 30% of the long position when I sell my short position. Of course the longer you go out in time with your long positions... the more costly.. and hence more difficult to bring in at least 30%. One exception may be.. a movement play on earnings.... Calendar spreads.. OTM... are fun to play on earnings... little risk.. for some great reward... if you're right. Or play them both ways... and just hope for some movement!

It's funny.. .how people characterize the Calendar strategy as one where you would like the security to move slowly up... or remain stagnant.... but in reality.. it's just how you put on the position.... it can really be anytype of strategy you would like.

I remember a few years back... you could bring in 25% on the front month QQQQ's when buying a LEAP. It only took four or five months to pay for the LEAP.... now that was some good Calendar premium.

Again.. I still favor the Put Calendar spreads.... the volatility and movement work together to create some awesome positions.

Just a Side Note: One of our investment group members only does Calendars. He buys companies which have been really beaten down... have liquidity.... and he buys the longest possible LEAPs available. He then sells short term months at resistance areas... This strategy has produced yearly returns for the past three years around 35%. He thinks of it as the 'Warren Buffet" of options strategy. Buys undervalued, beaten up companies.. and takes in the premium every month during the recovery period. Usually after six months or so... he has his LEAP completely paid for.... It's an interesting strategy.. and at times requires some margin... as the stock may not be bottomed out... but... at least as of today... he's doing great. It definitely... is a stomach ULCER.... type strategy.

M~
 
When things settle down around here... I'll chat about my favorite calendar trade.... the "M-trade".

It's simply and call and put calendar trade at the same time. It yields a large probability of success.... but doesn't like extreme movement similar to the credit spreads.

More later.

M~
 
Quote from Sailing:

When things settle down around here... I'll chat about my favorite calendar trade.... the "M-trade".

It's simply and call and put calendar trade at the same time. It yields a large probability of success.... but doesn't like extreme movement similar to the credit spreads.

More later.

M~
More...

Putting calendars on both sides (calls and puts) is simply doubling up.
 
zia mostabi sent me this to post. I'd like commentary:

I call my strategy Convertible Double calendar strangle.. a little confusing but it is very simple... this strategy in the beginning is non-directional but as market shows some behavior and direction then I adjust your position accordingly.

Here the way I play the game:
1. I scan the market for those underlying equities that has tight BB i.e. low historical volatility and make sure that IV <HV and underlying equity has had a good range of trading in the past
2. Strangle the underlying equity at least for four months (giving ourselves enough time for breakout either way)
3. There is a time decay involved which is about 12% every month. to compensate that I convert part of my position to calendar..selling 3 lot will take care of it, if you start with 10 lots
4. Here is the time that I have to be patient and wait for breakout ....this is usually happens and when one side moving from OTM to ITM then I convert my Strangle to Straddle to protect all the gain due to current movement..if you think it is too much adjustment you can ignore partial calendar
5. From here you make your position double diagonal meaning selling call and put one strike above your recent straddle strike price.

P. S. there is always an exception to the rule that comes with the creativity of traders because as you aware, market is non-linear animal.. and has to be treated differenly as behaved.
 
I trade these with Redoptions. They call them double diagonals.

Quote from Sailing:

When things settle down around here... I'll chat about my favorite calendar trade.... the "M-trade".

It's simply and call and put calendar trade at the same time. It yields a large probability of success.... but doesn't like extreme movement similar to the credit spreads.

More later.

M~
More...
 
He also posted it in 4 different threads on the site lol....

Quote from gatorplease:

zia mostabi sent me this to post. I'd like commentary:

I call my strategy Convertible Double calendar strangle.. a little confusing but it is very simple... this strategy in the beginning is non-directional but as market shows some behavior and direction then I adjust your position accordingly.

Here the way I play the game:
1. I scan the market for those underlying equities that has tight BB i.e. low historical volatility and make sure that IV <HV and underlying equity has had a good range of trading in the past
2. Strangle the underlying equity at least for four months (giving ourselves enough time for breakout either way)
3. There is a time decay involved which is about 12% every month. to compensate that I convert part of my position to calendar..selling 3 lot will take care of it, if you start with 10 lots
4. Here is the time that I have to be patient and wait for breakout ....this is usually happens and when one side moving from OTM to ITM then I convert my Strangle to Straddle to protect all the gain due to current movement..if you think it is too much adjustment you can ignore partial calendar
5. From here you make your position double diagonal meaning selling call and put one strike above your recent straddle strike price.

P. S. there is always an exception to the rule that comes with the creativity of traders because as you aware, market is non-linear animal.. and has to be treated differenly as behaved.
More...
 
One place where I sometimes find good calendar candidates is in the Stocks to Watch section of CBSMarketWatch. A stock with a FDA announcement coming up will usually see some activity in the weeks leading up to the announcement and show up in the stocks to watch section. WHen I see such a news item I look at the skew and the chart and take a directional bet using a deep OTM calendar. If the news is good the stock will shoot towards the strike of my calendar while IV in the front month will fall hard. If it moves away, the long-term option still has some value and you close out for a small loss. It is more of a home run trade but the initial debit is usually manageable given the large skew. If you can get in for $1.25 or less you can make a large return if it moves your way.

I did this on CYBX last year and make over 100%. I do not like to do this trade often as it is a home run trade not a regular trading approach. You have to read the news and see if you can determine in your mind which direction is more likely than not and place the calendar. Others have spoken about doing deep OTM calendars on both sides but I think the debit is too much for that one or 2 wins to override the losses.

I will scan the news daily and see if one pops on the radar.
 
OK, here's one to discuss.

STE-Steris
Local corporation to me. Makes medical equipment.

Poor earnings but gapped up an speculation as a buyout target by Johnson and Johnson. Gapped after JnJ dropped bid for Guidant.

Is it a good candidate for this play? I'd be looking for a gap fill.,


Say buy Jan or March puts. Sell Dec?
 
We're looking at PFE as a possible candidate for a Call Calendar.

This would be a long term Calendar trade.... buying LEAPs... and selling monthly premium at resistance points to pay for the Leap position in a one year time frame.

Still anallyzing the trade... will follow up upon conclusion.
 
Please let us know. We'd be very interested.

FYI,

I entered 5 March 25 STE puts. I think the gap up is too much and expect a gap close.

I sold 2 Dec 22.5P against it as a partial calendar. I will close out some of the March puts at gap close, and leave the remainder in the spread.

Profit 0.30 so far. But that could disappear tomorrow.


Quote from Sailing:

We're looking at PFE as a possible candidate for a Call Calendar.

This would be a long term Calendar trade.... buying LEAPs... and selling monthly premium at resistance points to pay for the Leap position in a one year time frame.

Still anallyzing the trade... will follow up upon conclusion.
More...
 
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