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Cooking Calendar Spreads
- Thread starter rocky_raccoon
- Start date
Don't long and short calendar spreads have different requirements to be profitable? The discussion seems to imply there is only 1 way to trade them.
I'm new to this so if I've lost the plot, please bear with me.
I'm new to this so if I've lost the plot, please bear with me.
Quote from rocky_raccoon:
Wow, so much fighting going on here. Take it easy, guys. Let's get back to the technicals.
Adjustments - I have a rule of never averaging down or hedging a losing trade. If it's losing more than a certain amount - close it. There will be time for another trade.
A winning position is a different matter. There may be a reason for subsequent trades. In calendar's case it would be rolling a short leg for another month if there is more than one month between short and long leg.
Another adjustment that I like is taking profit on a wining position and opening a similar one later.
"Calendars are extremely difficult, complex, risky, etc." - I don't get this. What's so complex about a bell-shaped P/L graph that goes to a tent-shaped as the time goes by? It is long theta & vega while short gamma. Delta could be neutral but a little negative bias would work better. If the position is opened when IV is low then vega most likely works in our favor. The primary risk is short gamma and that is the part I am trying to assess to size the position appropriately.
My main question essentially is:
Do calendars have a statistical edge (probability of win * size of win > probability of loss * size of loss)? under the right conditions? Low IV is one of them but what else?
They're not complex. They slip to bimodal on theta only when structured deep OTM(ITM), or they're losing on gamma, which is why people ratio-out the vega (utterly moronic). Or worse, they roll. What's the point of being in a calendar to increase the gamma risk (and speed) and reduce the vegas? Obviously to increase the thetas, but then you're better off minimizing the complexity (to term structure) and simply sell some puts or strangles with less size.
Better to diagonal than add gamma-risk via ratio. It's a poor wager to go deep OTM and ratio-out the vega under the illusion that you're still long vega in the term-structure. If you win it's not on term-structure 7/10x. it's because you took a dumb risk in the excess shorts.
Quote from atticus:
Stock at $500
Short 450C in "front month"
Long 2*500C in 1st reporting month
Short 550C in 2nd reporting month
You're unable to make the front month within 30-days, as the dates won't be equidistant. Short the time fly into the present-Q earnings release.
So for example GOOG reports in the Oct expiration cycle;
Short Sep
Long 2*Oct
Short Nov??
Close before which expiry?