delta gamma neutral calendar spreads

Quote from newwurldmn:

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.
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Down the road, i'll probably have to learn at least how to program in excell, but I'm not yet that computer litterate...

Are you hinting at positions similar to the initial calendar spread ? I don't think the long 10 1515put/short 5 1450 is not dependant on a 1 point volatility only ?!?

Actually reading Mc Millan example, it looked more like depending on IV beeing a few points below its mean than a very tiny theoritical edge. I'm not confident on betting on a tiny theoritical edge, but rather on the market getting more volatile when we get closer to the next round of fiscal cliff and debt ceiling debate.
 
Quote from luisHK:

Down the road, i'll probably have to learn at least how to program in excell, but I'm not yet that computer litterate...

Are you hinting at positions similar to the initial calendar spread ? I don't think the long 10 1515put/short 5 1450 is not dependant on a 1 point volatility only ?!?

Actually reading Mc Millan example, it looked more like depending on IV beeing a few points below its mean than a very tiny theoritical edge. I'm not confident on betting on a tiny theoritical edge, but rather on the market getting more volatile when we get closer to the next round of fiscal cliff and debt ceiling debate.
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I was referring to the calendar in the OP.
The second trade is really an ITM calendar spread and a ITM put. This isn't delta neutral. I don't know if it's gamma neutral. In this trade, your pnl will be driven by delta, not vol.
 
Quote from newwurldmn:

I was referring to the calendar in the OP.
The second trade is really an ITM calendar spread and a ITM put. This isn't delta neutral. I don't know if it's gamma neutral. In this trade, your pnl will be driven by delta, not vol.
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thats why i was saying its hard to isolate just vol... its like you have to have accompanied speculations with the other associated risks..
 
Quote from 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
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i just was thinking about this thread while i was spacing off eariler.. i have spent many hours thinking and reading about term structure trading in options.. I am new to options trading.. will consider myself new to the deal for years i know there are so many nuances to learn.. But what i was thinking is.. there is are several good books.. Hull is one good author.. and Baird options market making is another.. typically if you think there will be volatility in a particular month it would be good to put yourself long premium in that month.. and sell the month in front of it.. defining where your strike risk will be can be quite an art if you are doing long calenders.. the risk slowly changes over time. As you get very close to the expiration of the first months contract it becomes less a factor and you are just more outright long premium in the back month option.. Modeling these trades and changing the parameters is something you can do in Hoadley's excel add in and TOS i'm sure there are others.. you can no eliminate all delta gamma risk in just options period to isolate vola.. so you have to pick the best risk to reward in gamma that you can find.. laying a term structure trade on early will obviously put you at less gamma risk but because the two months you are trading against each other are both so far out from expiration they won't work against each other so quickly..
that being said.. as expiration approaches the distance between the two months gets farther apart relative to expiration of both and your short front month theta value starts to really work against the bid on volatility thats holding up the back month.. Earnings months are good examples of this...

by the way..(just my opinion) try these ideas on the SPY, and not ES options .. if your new to options keep the notional size of the trade way down.. so you can experience the trades risks without ruining yourself..
 
Quote from cdcaveman:

thats why i was saying its hard to isolate just vol... its like you have to have accompanied speculations with the other associated risks..
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In theory you can initiate the calendar trade to be gamma neutral by adjusting the ratio, so your position has mainly vega risk (assuming you are delta neutral too and your strikes are ATM). Then you are exposed on the forward (implied) variance ie from the end of the front month.
 
Quote from kapw7:

In theory you can initiate the calendar trade to be gamma neutral by adjusting the ratio, so your position has mainly vega risk (assuming you are delta neutral too and your strikes are ATM). Then you are exposed on the forward (implied) variance ie from the end of the front month.
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yeah you neutral at that very moment.. thats the point i was trying to make..
 
I'll probably have a couple of questions on some points raised, but need some decent sleep before that :confused:

Anyway entered the second spread (buy 2 1515 march put buy 1 1450 march put, in those quantities only) at ES around 65.5. Would have been better yesterday evening around 70.

FWIW I'm quite short futures and EEM atm, for a shorter term swing trade, but I should lighten up today.
 
Quote from cdcaveman:

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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That's the main part I was wondering about, quite different than the position I entered (long 2 1515put short 1 1450 ).

Although I see how it would benefit from increased vol even if the otm put remain otm, what is the point of buying the expensive options (I understand the skew on ES is standard, but does it mean one shouldn't sell it ?). But the lack of volume on 1515 put (which I bought) leaves me suspicious over the reasonning of the position I entered.
 
Quote from cdcaveman:

isolating vol to play term structure isn't easy.. its not easy to find a free place to graph calender risk.. .
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He's isolating gamma. Root time vega neutral is also easy. The problem is making it reasonably efficient on terms of initial req. In root time you're ramping gamma too. To get flat one moment will increase another.
 
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