Calendar Spreads

RichardRimes · Feb 23, 2006

Quote from IV_Trader:

shakan and Donna , take a paper trade on MRVL RC:
MAR/MAY 62.5 call for 2.1 credit , or
MAR/AUG 62.5 call for 4.30 credit
Not the best one , but you can see the R/R as a sample,
reporting after close

by buying Mar selling back months tho arn't you really buying the much higher vols. So if vols go down after reporting you would lose out wouldn't you?

IV_Trader · Feb 23, 2006

Quote from DonnaV:

by buying Mar selling back months tho arn't you really buying the much higher vols. So if vols go down after reporting you would lose out wouldn't you?

not really , both front and back month vols are inflated , BUT back month have a higher vega (May more then double than March) , so if March vols will lose 20bp , but May 10 its an even $ amount. The rest is in the stock move. Maybe I'm not explaining it right.

skanan · Feb 23, 2006

Quote from IV_Trader:

shakan and Donna , take a paper trade on MRVL RC:
MAR/MAY 62.5 call for 2.1 credit , or
MAR/AUG 62.5 call for 4.30 credit
Not the best one , but you can see the R/R as a sample,
reporting after close

Thanks! I got it at MAR/MAY 62.5 call at $1.85 credit and Mar/Aug 62.5 call at $4.00 credit.

The IV data on the call side is here:
Mar 58.37%, May 44.39%, Aug 41.88%

Gamma for Mar/May is 3.95 and Mar/Aug is $3.5

I project that if IV Mar drop 20% and May drop 10%, the stock has to move from $63 to $57 or $68 to break even. I guess I underestimate the vol lost from the back month.

I project that if IV Mar drop 20% and Aug drop 15%, the stock has to move from $63 to $56.5 or $75 to break even. This number does not look right to me.

skanan · Feb 23, 2006

Quote from IV_Trader:

not really , both front and back month vols are inflated , BUT back month have a higher vega (May more then double than March) , so if March vols will lose 20bp , but May 10 its an even $ amount. The rest is in the stock move. Maybe I'm not explaining it right.

Do you mean Marc vol will loose 20bp and may will loose 10bp ? This will put IV of both of them about 3x %.

Or do you mean Mar vol will loose 20bp and May 10 will loose certain amount of vol which in dollar term is equivalent of Mar $ lost in vol ?

Thanks,

IV_Trader · Feb 23, 2006

Quote from skanan:

Do you mean Marc vol will loose 20bp and may will loose 10bp ? This will put IV of both of them about 3x %.

Or do you mean Mar vol will loose 20bp and May 10 will loose certain amount of vol which in dollar term is equivalent of Mar $ lost in vol ?

Thanks,

both months will lose the SAME $[cents] amount

RichardRimes · Feb 23, 2006

Quote from IV_Trader:

not really , both front and back month vols are inflated , BUT back month have a higher vega (May more then double than March) , so if March vols will lose 20bp , but May 10 its an even $ amount. The rest is in the stock move. Maybe I'm not explaining it right.

No...your doing fine...thats right, I'd forgotten about VEGA!

IV_Trader · Feb 23, 2006

Quote from skanan:

Thanks! I got it at MAR/MAY 62.5 call at $1.85 credit and Mar/Aug 62.5 call at $4.00 credit.

The IV data on the call side is here:
Mar 58.37%, May 44.39%, Aug 41.88%

Gamma for Mar/May is 3.95 and Mar/Aug is $3.5

I project that if IV Mar drop 20% and May drop 10%, the stock has to move from $63 to $57 or $68 to break even. I guess I underestimate the vol lost from the back month.

using your numbers Mar call will be at 50c (stock at 57 and vols at 38) and May at 180( 57, vols=34) for a buy back of 1.30 and profit of 80 cents. Not a break even , much better.

I project that if IV Mar drop 20% and Aug drop 15%, the stock has to move from $63 to $56.5 or $75 to break even. This number does not look right to me.

RichardRimes · Feb 24, 2006

Quote from DonnaV:

Quote from DonnaV: FEB 13

SHLD... rolled the Feb 115 to Mar 120 at 5.10 leaving a diag for my June 115 and cal for June 120...reason...stock could go up in Mar at least enough to justify the upward roll have reduced debt now to 1.70 for the 115's and 4.05 for the 120's with two rolls left.

FEB 22
SHLD
In the past week the Mar 120 puts had shrunk to the pt that I decided to go ahead a roll 10 Mar 120 to April...for a credit of 2.20...leaving 5 to possibly roll later (to April 115)

More...

Feb 24 As the premiums have shrunk rolled the 5 contracts (originally Feb115p) from short March 120p to short April 115's for a .20 credit so now on 5 contracts I'm back to a calendar..Apr/Jun 115 put calender...at a cost of $1.50
(original debt of Feb/June 115 was 6.80...net from two rolls 5.30)

Did this to avoid a WFMI senerio

skanan · Feb 24, 2006

Quote from skanan:

Thanks! I got it at MAR/MAY 62.5 call at $1.85 credit and Mar/Aug 62.5 call at $4.00 credit.

The IV data on the call side is here:
Mar 58.37%, May 44.39%, Aug 41.88%

Gamma for Mar/May is 3.95 and Mar/Aug is $3.5

I project that if IV Mar drop 20% and May drop 10%, the stock has to move from $63 to $57 or $68 to break even. I guess I underestimate the vol lost from the back month.

I project that if IV Mar drop 20% and Aug drop 15%, the stock has to move from $63 to $56.5 or $75 to break even. This number does not look right to me.

Here is the result after earning:

The IV of Mar 62.5 call is 40.15% loss of 18%
IV of May is 40.54% (only about 4% drop). IV of Aug is 40.68% (1.2% drop). Mar 62.5 call is now $2.75, May $5.05, and Aug $7.5. The RC Marc/May lost is $0.4/contract. The Mar/Aug lost is $0.75/contract.

I learn a lot from this paper trade. I knew this scenario would put me in quite a good lost but did not expect MRVL will stay the same after earning.

Another one I followed was NTES. Since I did not do the paper trade, I just recorded the IV of and price of 75 put.

Before Earning: Mar 75P IV 67%, $4.7, APR 75P IV 51%, $5.6

After Earning: Mar 75P IV 41%, $0.30, APR 75P IV 38.86%, $1.15

The RC on NTES would generate credit $0.9 and can be closed for $0.85 debit. So this trade still does not make money even if the stock moved $10 today !.

IV_Trader · Feb 24, 2006

Quote from skanan:

Here is the result after earning:

The IV of Mar 62.5 call is 40.15% loss of 18%
IV of May is 40.54% (only about 4% drop). IV of Aug is 40.68% (1.2% drop). Mar 62.5 call is now $2.75, May $5.05, and Aug $7.5. The RC Marc/May lost is $0.4/contract. The Mar/Aug lost is $0.75/contract.

I learn a lot from this paper trade. I knew this scenario would put me in quite a good lost but did not expect MRVL will stay the same after earning.

Another one I followed was NTES. Since I did not do the paper trade, I just recorded the IV of and price of 75 put.

Before Earning: Mar 75P IV 67%, $4.7, APR 75P IV 51%, $5.6

After Earning: Mar 75P IV 41%, $0.30, APR 75P IV 38.86%, $1.15

The RC on NTES would generate credit $0.9 and can be closed for $0.85 debit. So this trade still does not make money even if the stock moved $10 today !.

MRVL ended up as complete disaster trade ; everything went wrong.
The biggest disappointment was collapse in MAY vols by only 4% , would this collapse be at 10% (as expected) , this trade be at break even WITHOUT any change in price.
Now you also now why I enter all/most of those trades when Front month is < 15 d before expirations. If this would of be a case , a premium on the May call would be less by 70c .
Good luck with your future Rc ( if any )