delta gamma neutral calendar spreads

L

luisHK

Hi

I'm looking to bet on increasing volatility before mid march, preferably on ES options, and I'm a total noob at spreads (among a bunch of other things). In my Mc Millan on Options edition, page 448, he shows a 3 leg calendar spread where he seems to neutralize the gamma

For XYZ= 100 vol=20% on Jan 2nd

Long 52 June 100 calls
Short 44 March 100 calls
Long 15 June 100 puts

which brings the kind of PnL graph I'm looking for.
yet with TWS I can't manage to graph a similar position, nor play easily with the number of contracts to see the resulting greeks.( I was looking at 1470 march 15 calls and 1470 june 21 calls and puts)

Anyone care to indicate a position in the same spirit that woud work, and point me on a website where I could calculate and graph the PnL for this kind of spread (I don't want to pay to use the software to begin with as I *might* give up with spreads faster than I started, a free trial would be nice).

Obviously hints at how to graph this with TWSwould be most welcome as well

Thanks
 
Ah yes, the position could be with less debit and puts, but I would like to keep it as much gamma neutral as possible, rather with a bearish bias if any
 
Well, it's not easy for me at least... i guess there are decent programs with a 1 week trial or so, but I would be looking for something easy to grasp

Also looking at a spread like :

buy march 15 1515 put *10
sell march 15 1450 put *5

for a debit of approx 440, but none for time value

Am I right this spread should benefit from increased vol, which wouldn't be the case for a non ratioed spread ?

I might do it as well 3/6 or 8/4

BTW I chose the 1515 put because that's the more itm strike with bids and offers at this time, but I'm opened to other strikes.

Any other leads on this particular situation ?
 
Quote from luisHK:

Well, it's not easy for me at least... i guess there are decent programs with a 1 week trial or so, but I would be looking for something easy to grasp

Also looking at a spread like :

buy march 15 1515 put *10
sell march 15 1450 put *5

for a debit of approx 440, but none for time value

Am I right this spread should benefit from increased vol, which wouldn't be the case for a non ratioed spread ?

I might do it as well 3/6 or 8/4

BTW I chose the 1515 put because that's the more itm strike with bids and offers at this time, but I'm opened to other strikes.

Any other leads on this particular situation ?
More...

what do you estimate to be your skew risk?
 
I think if the market sells off, the 1450 IV will increase more than the 1515 individually, but the 10*5 ratio should get the overall position gain.

In case the market rallies from 1470, it looks ugly anyway, but I don't see any skew issue ?!?
 
Quote from luisHK:

I think if the market sells off, the 1450 IV will increase more than the 1515 individually, but the 10*5 ratio should get the overall position gain.

In case the market rallies from 1470, it looks ugly anyway, but I don't see any skew issue ?!?
More...

well of course skew will go up if theres a sell off .. but i was wondering if you had any clue and what you thought it looked like.. :)
 
If you are trying to do this as a learning mechanism, my suggestion is to program it into excel or matlab. Then you can see what's happening without using another man's eyes.

This type of fly requires understanding volatility pretty well. There won't be more than 1 vol of edge (and probably a lot less). So you better understand the nuances of your gamma profile.
 
i'm not 100% sure of the meaning of the "Of course the skew will go up" (although I suspect we say the same) but the idea of the position is also to take profit of the reverse skew (sell expensive IV buy cheaper one), far from gamma or delta neutral, but I thought it might also be appropriate to play higher vol going to end of february.
 
Quote from luisHK:

i'm not 100% sure of the meaning of the "Of course the skew will go up" (although I suspect we say the same) but the idea of the position is also to take profit of the reverse skew (sell expensive IV buy cheaper one), far from gamma or delta neutral, but I thought it might also be appropriate to play higher vol going to end of february.
More...

we are some what on the same page.. but i'm talking relative pricing.. so your otm's go up more then your atm's in a big sell off right.. how to account for that? or quantify that? yes the current status is that the otm's are higher iv then atms'.. (isn't that typial) but how much more could the otms be priced relative to the atms in a big sell off.. obviously if you hit the nail on the head and call the terminal distribution it doesn't matter.. and or if the whole thing goes into the money.. my thoughts are.. if you ratio backspread a increase in vols and skew would help you.. short 1 near the money, buy in ratio a bunch of otm's right? that would turn it more into a long skew play.. make sense?
 
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