Double Diagonals V's Double Calendars

P

Pinozi

I've been some trading some double calendars with good success lately and wanted to investigate doing some double diagonals.

Just wanted to ask what are the pros and cons of the two strategies?

I know the DD will require margin but costs less to place. The DC has no margin but the initial cost is higher.

Seems the break even points are similar on the strategies. So the risk reward seems similar in comparison.

The DD also has the possibility of being rolled into an IC when the front expires, so that could be a plus

Im not too sure how either reacts to a rise or fall in IV??

Thoughts please..... ?

Cheers

Pinozi
 
Not much difference between Double Diagonal and Double Calendar. Like you mentioned, there is margin requirement in DD's.

What you will also notice is that the Theta is typically higher for Double Diagonals but so is -ve Gamma.
 
DD are little more delta and vega neutral and have higher theta than DC. it depends on your outlook of IV to say if it is good or not. If you expect Iv to go up, DC are better and vice versa.
 
I personally think double cals are easier to adjust and trade that double diags. For instance, start out with a single cal, adjust into a double cal as the underlying moves, then adjust into a triple cal if necessary. You simply can't do this with a double diag. I also like the quantified risk of a double cal as opposed to the double diag.
 
Quote from Div_Arb:

I personally think double cals are easier to adjust and trade that double diags. For instance, start out with a single cal, adjust into a double cal as the underlying moves, then adjust into a triple cal if necessary. You simply can't do this with a double diag. I also like the quantified risk of a double cal as opposed to the double diag.
More...

Can you give a few more details?

Let's say you put on a call calendar. If the stock moves up do you add a put calendar or another call? If it moves up again what do you do? Same thing for starting with a put cal and the stock moves down.

Thanks.
 
Lets say a stock is trading @ $100

You open a 4 lot Calendar @ 100

Stock moves down to 95 - you close 2 of the 100 Calendars and open 2 90 Calendars - so you end up with a Double Calendar

Stock keeps moving to 88 - you close 1 of the 100 Calendars and open 1 85 Calendar - thus ending up with a Triple Calendar

Hope that helps....

Another question....... since Calendars are a positive vega position, can anyone suggest any possible adjustments if IV were to drop away unexpectedly. I usually find if this happens I just have to be in the trade a little longer than planned to make less than expected - can an adjustment fix this?
 
With SPX @ 1296.3

Double Calendar

Sell 1 Sep 1330 Call, Buy 1 Oct 1330 Call
Sell 1 Sep 1290 Put, Buy 1 Oct 1290 Put

Double Diagonal

Sell 1 Sep 1330 Call, Buy 1 Oct 1350 Call
Sell 1 Sep 1290 Put, Buy 1 Oct 1270 Put

The way I learnt these two strategies is they both start with the same short strangle in the front month, the DC has the long legs at the same strikes while the DD has the long legs further away from the money
 
Quote from Pinozi:


Another question....... since Calendars are a positive vega position, can anyone suggest any possible adjustments if IV were to drop away unexpectedly. I usually find if this happens I just have to be in the trade a little longer than planned to make less than expected - can an adjustment fix this?
More...

Try to add a credit spread in the front month. See some discussion on the greeks at:

http://www.elitetrader.com/vb/showthread.php?s=&threadid=127805
 
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