Call calendar vs put calendar

[rocky_raccoon]

Hi Y'all,

In theory put calendar and call calendar on the same strike and expiration should trade at the same price. However, in practice it is not the same.
The difference is sometimes significant (5-10% of the spread value).

Therefore, the question is: if there is such a difference, would it make sense to buy more or less expensive spread? Note, that sometimes a put calendar is less expensive and sometimes it is a call calendar.

Thanks
RR

 

[1245]

Quote from rocky_raccoon:

Hi Y'all,

In theory put calendar and call calendar on the same strike and expiration should trade at the same price. However, in practice it is not the same.
The difference is sometimes significant (5-10% of the spread value).

Therefore, the question is: if there is such a difference, would it make sense to buy more or less expensive spread? Note, that sometimes a put calendar is less expensive and sometimes it is a call calendar.

Thanks
RR

They will trade at different prices in the case of a stock with a dividend or
hard to borrow. Also, if interest rates go up, that would effect the value of the two.


1245

 

[osho67]

Quote from 1245:

They will trade at different prices in the case of a stock with a dividend or
hard to borrow. Also, if interest rates go up, that would effect the value of the two.


1245

Can I trade calendars to earn premium income. Will there be any advantage? Thanks

 

[1245]

Quote from osho67:

Can I trade calendars to earn premium income. Will there be any advantage? Thanks

That's a tough general question. You have to mange your expectations of where you believe the stock will trend during the time you hold the spread and your expectations of where the month your long will trade closer to expiration of the short option.

If it trends toward the strike you have chosen, your good. Away, bad. If implied vol of the long month drops, not good. When you're long a calendar, the majority of the benefit comes in the last few days. Very hard to time rolling or getting out.

Not the best strategy for income generation but can be added to an option portfolio when the prices and your target strikes align for you.

1245

 

[George Quinones]

Quote from 1245:

They will trade at different prices in the case of a stock with a dividend or
hard to borrow. Also, if interest rates go up, that would effect the value of the two.


1245

Besides the pending dividend, which most platforms dont account for correclty.

The price difference has to deal with volatility skews.

 

[atticus]

Quote from George Quinones:

Besides the pending dividend, which most platforms dont account for correclty.

The price difference has to deal with volatility skews.

On same-strike calendars? Were you dropped on your head?

 

[jirib]

Quote from rocky_raccoon:

Hi Y'all,
In theory put calendar and call calendar on the same strike and expiration should trade at the same price. However, in practice it is not the same.
The difference is sometimes significant (5-10% of the spread value).

I traded Calendars with short front leg 1 week away and long leg two weeks away last year and switched to 2 weeks on short and 4 weeks on long since early this year.
I trade on SPY/SPX and due to market conditions, the Call calendars are very cheap. I trade the one with wider BE point, ie. the cheaper.

Be careful with this though, you need to backtest it well and do your market analysis homework.