Double calendar question

galvinlee888 said:
+1. Especially the final sentences.
"But trying to create some monster like structure where you think you have no direction risk and some "tent pole" structure (terminology that gets splattered around at free option seminars and worthless option books) is a waste of time."

A lot of newbies though by going to "complex strategies", their chance to success will increase which in reality is a big NO (not even mentioned the commission and slippage incurred for those positions which further reduce your tiny edge). KISS is the best.

Just a note: Those "complex strategies" are not really that complicated, we all went through this route before which eventually we all realized those are just pure BS marketing strategies sold by seminar, snake oil salesman/mentor or worthless book. It is like the trap in the journey that all the options traders had to go through :)
More...

Given your experience in trading options, would you - or anyone else - mind sharing the strategies that have proven to be successful for you? Thanks in advance.
 
sonoma said:
If your opinion is that spot won't move, skip the double calendar. Instead, start with the ATM calendar or fly and add trades as appropriate.
More...

ATM calendars are long vega and theta, but have a rather strong negative gamma going off-center. The idea of a double calendar would be to keep the +v and +t but lessen the gamma-effect by broadening the range. Never tried it, but what's wrong with that plan?
 
MajorUrsa said:
ATM calendars are long vega and theta, but have a rather strong negative gamma going off-center. The idea of a double calendar would be to keep the +v and +t but lessen the gamma-effect by broadening the range. Never tried it, but what's wrong with that plan?
More...

The basic idea I'd suggest to new traders is to keep things as simple as possible and not over-commit to any one single position, whether it’s the initial trade in a product or simply one you’ve added to a larger inventory. The complexity of the double calendar comes with the deferred month vol risk. If you evaluate the differences in breakevens, greeks, cost, return profiles, and drawdowns, you’ll see the disadvantage of a double calendar compared to a more simple trade that is positioned initially with a neutral outlook also, but with the option of adding another trade as the underlying moves or iv changes.

Certainly there are situations that would justify taking the risk of deferred month vol change, but I’d leave that for a time when the OP has more experience.
 
I agree that there is more risk to calendars than seems at first sight, specifically because of the difference in IV of the legs. The vega-effect is also much more prominent in calendars than the (increasing) negative gamma. So it probably isn't worth it to widen the latter anyway. But I can see OP's seems like a natural step to buy cheap vega, as opposed to selling vega/calendars when vega is high.
 
MajorUrsa said:
I agree that there is more risk to calendars than seems at first sight, specifically because of the difference in IV of the legs. The vega-effect is also much more prominent in calendars than the (increasing) negative gamma. So it probably isn't worth it to widen the latter anyway. But I can see OP's seems like a natural step to buy cheap vega, as opposed to selling vega/calendars when vega is high.
More...

He is NOT buying cheap vega. He is buying or "trying" to buy flat skew. I don't even think he is aware of that. The p&l is coming from the skew, not the "vega".
 
Maverick74 said:
He is NOT buying cheap vega. He is buying or "trying" to buy flat skew. I don't even think he is aware of that. The p&l is coming from the skew, not the "vega".
More...

Happy, healthy and prosperous 2015 to all!

I think I see what you mean, but I still feel that if an ATM long cal is considered a good bet, so would a double long calendar be. I agree that modeling it correctly is probably useless effort. I somehow miss why it would be so much worse.

In the past I shorted ATM calendars when IV was extra high, trying to profit from a drop in IV or a sharp move in the spot. Of course a sharp drop in spot also would sometimes induce an even higher IV, which was OK if spot stayed low and IV eased down in time. I guess the approach was rather simplistic but it was easy to establish and risk didn't keep me awake :-) although there were some confusing scenario's.

I have no experience in trading long calendars though. I was always scared of the -gamma with an ATM long calendar. The only way I would consider them was OTM (or ITM) with low IV and expecting the spot to move towards me. Since I'm very bad at predicting market (spot) direction I tend to avoid those methods.

The OP probably has the same issue, trying to be non-directional in low IV environment. I have the feeling we both miss the final link here. I only recently returned to option-trading, nice to see the same faces here still. A little nudge would be welcome.
 
MajorUrsa said:
Happy, healthy and prosperous 2015 to all!

I think I see what you mean, but I still feel that if an ATM long cal is considered a good bet, so would a double long calendar ...
More...

It's not so much that a double calendar is a disastrous trade. It's just a more expensive way to express a market opinion than the alternative. Of course, you can trade these types of positions successfully, but if you're making the effort to learn to trade, why not do so with an eye towards optimal?
 
Very interesting discussion. Would similar modeling risk extend to diagonals or plain calendars? I have experienced more than my share of multiple-expiry trades that don't behave "as expected".
 
You must log in or register to reply here.
Back
Top