Deep OTM Double Calender Spread

Peace,

EvanDM said:
When I am looking at the option chain in TOS I will look to see where the vol starts to stabilize and use that as "support". M looks likes around it could crush to about 40% to 45%. If the stock doesn't move I think you could take about 65 cents out of a 1 lot.
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Can you help me dissect what you mean a little more so that I can understand?
  1. What is the purpose to see where vol stabilizes? Are you referring to the vol of the shorts? You use it as support for what?
  2. If M looks like it can crush to about 40-45% vol on the one of the shorts, what does it matter if our intention is to let the shorts expire worthless anyways and not close the overall position. The intent of this trade is to make substantial returns from the backweek/backmonth longs after one of the shorts expire worthless. It's purpose is to buy the longs at discount and reap rewards from that leg.
Peace,
Amahrix
 
The vol is going to crush for the upcoming expirations not just the AUG 17s. Your longs that are only an extra week out are going to lose value as well. The AUG 24 vol is around 75% right now so I was assuming that it will go down to about 45% after earnings.

You really only have two scenarios. 1. The stock doesn't move or moves just a little and your shorts become worthless but you also lost some value in your longs because of the vol crush. 2. The stock makes an outsized move and you are stuck with one side of your calendar in-the-money that you are going to have to exit before expiration.
 
Amahrix said:
Peace,



What do you mean by 'skew' exactly? Is it that the market thinks it's most likely headed in one direction versus the other and not an even 50/50?

Peace,
Amahrix
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Weekly options around the earnings have vols around 100%. The back month I showed has vols around 70%. That is the skew in vols across the months.

However there is additional risk here as pointed out as I see normal vols for M at 50-55% so the front month will collapse a ton but so will the back month as @EvanDM pointed out. I am betting that front month collapse and theta will far outweight what will happen to the back month. Normally I go 1 month apart on calendars but went with the consecutive weeklies to play it extremely cheap. AUG 31 or SEP 7 WEEKLY might be better but double the debit so playing the cheaper calendar for larger potential.
 
If I were going to play I would probably do the regular SEPs and stay away from the half dollar strikes. Maybe something like 42/38 and hope to take 50 cents out of it. By going out with more time I can try to trade my way back to break-even if the stock make a large move.
 
Good luck. TOS does not model calendars efficiently. They always look much better on the risk profile tab than they really are.
 
destriero said:
Double cals and diags are literally poison.
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This is an understatement

Edit: Actually short double diagonals could be initiated in steep smile environments to be both long gamma and theta which makes for a good trade. But besides that....
 
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EvanDM said:
Good luck. TOS does not model calendars efficiently. They always look much better on the risk profile tab than they really are.
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Absent index calendars... you're going to have to model leg-vols and I don'y think that TDA even allows you to do it, even as singles.
 
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