Double Diagonals

Dec13/20 1800, I suppose. I don't like to strangle these. In this vol you will lose quite a bit on the upside beyond the bull strike, even with stickiness.

1795/1815 if you're going to strangle them.
 
Thanks. Looking at the risk graph of these I'm just worried about how theta/gamma changes around with vol step up/down. I'm a noob when it comes to calendar spreads so I'm not sure what exactly to do for instance on a serious vol down and gamma / theta suddenly being all over the place. I was looking at potentially trading the Dec20/Jan03 1780-1830 strangle and closing it down on Friday, 1 week before expiry that is, because the theta/gamma/vega graphs seem more stable and nicer to deal with on wing-touch or on vol spike up-down. But I may be giving up edge elsewhere, Im sure the graphs dont tell the whole story. The edge of course I would be looking for is selling front IV, a bit away from ATM (skew) and hedging with back vol. Actively deltahedging the gamma, making theta but still having vega for potential spikes. Potentially rolling on wing-touches depending on my view. The downside being of course any strong upside rally which would destroy the vol of back-month. Thinking about potentially using VIX for hedges, I'm short vix most of the time anyways (into contango), that's why these seem like a nice idea.
 
They're pretty forgiving as long as you're near the strike, as the predominant risk on the short durations is gamma. I like long calendars as bull trades due to stickiness, so they work as bull and bear bets.

Yeah, if you're long the front VIX spread it makes a decent hedge until you flip (bear calendar).
 
Yes, the stickiness seems to be another advantage for these and should work especially well thanks to the big vega, if I'm correct. BTW do you deltahedge these, or roll when it goes towards wings? (Or BE-point, flipping gamma-point)
 
well its been working since i opened the trade on 12/24.....just not as consistently as i hoped, but ive been adjusting every week
week 1 +829
week 2 +89
week 3 +1066
week 4 +215
I started with 14,800
2199/4=549/wk so far
 
Thanks for the update. Your timing has been perfect...so far... As the market has basically gone nowhere . As long as it continues your good. Nice trade.
 
Quote from drownpruf:

It's a poor risk to go deep on duration with a diagonal. You're g/d exposure increases with only a small reduction in vega. Ideally you'd reduce gamma (same-strike spread). IOW, stick to standard calendars and go a bit further OTM. Hedge half your deltas is spot and stick to single spreads (don't strangle them).
More...

This is excellent advice btw
 
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