Calendar Spreads
- Thread starter gatorplease
- Start date
I re-read the link and have summarized the relevant portions...again thanks to the posters
-Calendar spreads need a fairly stable IV . Good to use in a market with rising vol. Prefer near month slightly higher than back month. obviously need a roll or two.
-Cal spreads are not the best options for earning theta..IC and B-fly's better. To get positive theta and pos vega it may be best to ratio and diagonalize both a call and put ...selling close to money near term and otm back month. However you may need to make frequent adjustments to keep vega neutral, you may just want to play the range and sell theta and live with some vega exposure. And in general you do not want to make too many adjustments (when doing a straight long cal) as they may change the nature of the option strategy.
-Cal spreads can work well by combining vert/diag
From Mav74
"By using vertical calendar spread you are simply changing the profit curve. For example on a long calendar if you sell the ATM and buy a higher strike far month, you might be able to do this spread for a credit or small debit. You also start the position out delta negative or so in that scenario, you would have a negative bias to begin with. ...
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 Jul 50 Straddle. Then every month keep selling the strangle against the back month straddle. Your position is always hedged and your taking in fornt 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 (Nov) you could sell 9 strangles leading up to July exp. I would let the back month straddle run if the stock makes a big move one way or the other. The best plays for this would be stocks with very low vol and are not moving much. Since you will have a lot of vega in the back months, you will benefit from any pop in the vol."
-Another good option if selling front month...sell XYZ 55 and buy 2 XYZ back month (backspread) if taking a directional risk..... (would have been a good choice for my WFMI)
-Biggest concern is with doing a number of straight long calendars..... one blow-out will wipe out the profits of several profitable ones. This is ultimately the problem with most option strategies and therefore the bottom line is not necessarily WHICH strategy you chose but HOW you manage the position once it is put on.
-
-Calendar spreads need a fairly stable IV . Good to use in a market with rising vol. Prefer near month slightly higher than back month. obviously need a roll or two.
-Cal spreads are not the best options for earning theta..IC and B-fly's better. To get positive theta and pos vega it may be best to ratio and diagonalize both a call and put ...selling close to money near term and otm back month. However you may need to make frequent adjustments to keep vega neutral, you may just want to play the range and sell theta and live with some vega exposure. And in general you do not want to make too many adjustments (when doing a straight long cal) as they may change the nature of the option strategy.
-Cal spreads can work well by combining vert/diag
From Mav74
"By using vertical calendar spread you are simply changing the profit curve. For example on a long calendar if you sell the ATM and buy a higher strike far month, you might be able to do this spread for a credit or small debit. You also start the position out delta negative or so in that scenario, you would have a negative bias to begin with. ...
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 Jul 50 Straddle. Then every month keep selling the strangle against the back month straddle. Your position is always hedged and your taking in fornt 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 (Nov) you could sell 9 strangles leading up to July exp. I would let the back month straddle run if the stock makes a big move one way or the other. The best plays for this would be stocks with very low vol and are not moving much. Since you will have a lot of vega in the back months, you will benefit from any pop in the vol."
-Another good option if selling front month...sell XYZ 55 and buy 2 XYZ back month (backspread) if taking a directional risk..... (would have been a good choice for my WFMI)
-Biggest concern is with doing a number of straight long calendars..... one blow-out will wipe out the profits of several profitable ones. This is ultimately the problem with most option strategies and therefore the bottom line is not necessarily WHICH strategy you chose but HOW you manage the position once it is put on.
-
I think there are real problems with trying to do a short cal for us retail traders.
1st- we CAN'T...it is illegal in my IRA and the margin in a regular account is almost prohibitive. I believe both Mav and others agreed it can only be attempted in a prop or where you get that strange haircut
2nd- you need a much more explosive vol environment. In 03 as well as 06 the vol's have been quite low. OTOH it might be possible on pending FDA or other anouncements.
3rd- practically...very difficult to find and execute in a timely manner
For learning purposes the paper trade thing is probably good...but I wouldn't waste too much time on it. GL donna
Here is my short calendar candidate. I appreciate any feedback.
TASR: buy Mar straddle and Sell Sep straddle.
I assume 15 cents slippage from b/a on the spread as worstcase. Total slippage to open and close the short calendar might be about 30 cents.
Buy Mar strike $10 straddle 1.80, sell Sep $10 straddle $3.70. Total credit $1.95
Assume holding for one day, theta lost is about 2.50 cent. If the IV loss 500bp, the spread may be widen to $1.99. To overcome slippage on buying back the spread also, IV has to loss 900bp.
I think I have to try put on one contract to see how much real slippage is. Tasr should move after the earning too so that would help overcome the slippage. Using Maverick leg-in technique could have reduced the slippage too.
I need the real data to see IV before and after earning and price move after earning to be able to project this more accurate.
-Nick
TASR: buy Mar straddle and Sell Sep straddle.
I assume 15 cents slippage from b/a on the spread as worstcase. Total slippage to open and close the short calendar might be about 30 cents.
Buy Mar strike $10 straddle 1.80, sell Sep $10 straddle $3.70. Total credit $1.95
Assume holding for one day, theta lost is about 2.50 cent. If the IV loss 500bp, the spread may be widen to $1.99. To overcome slippage on buying back the spread also, IV has to loss 900bp.
I think I have to try put on one contract to see how much real slippage is. Tasr should move after the earning too so that would help overcome the slippage. Using Maverick leg-in technique could have reduced the slippage too.
I need the real data to see IV before and after earning and price move after earning to be able to project this more accurate.
-Nick
Did you actually try it? How did it work out? thx donna
how long would you hold the short? Also in the last two years we have had very low IV so I could see it working...however if IV does start increasing is it not so good for the RC?