In the money Calendar Spread
- Thread starter jdoucet
- Start date
:eek:
I've been running a few calendars in virtual trading and seem to be getting the hang of it a little bit. The problem is I'll pick a PUT spread and then the stock rises so my long puts lose value and I'm like "oops! don't want to do that". Then I'll choose a call spread and the opposite happens. A two dollar move has some catastrophic results on my long positions. I'm looking for slow moving, low volatility stocks. I'm practicing with Wal-Mart and the QQQQ's right now. Seems to me that Calendars are pretty good setups if you get them right.
Breaking even on some XLE 55 puts (See then end of the Calendar Spreads thread. Edit: That would be in the Journals section.). These were mentioned by another poster, so I tried it - my first calendar. There is one more roll to Dec so I'll wait it out and maybe oil will come back. I think Bush will do anything he can to keep oil down until the election. (What happened to all those nasty hurricanes predicted a few months ago? What happened to the war with Iran? When will OPEC cut production?)
I also subscribed to Terry's Tips and have a bunch of XLE and OIH put and call calendars that are not doing very well.
Finally, I tried the RedOption free trial. They put on a YHOO calendar at 30. Well, you must know what happened there.
The thing you want with calendars is for the stock to be relatively stable and to look for higher IV (i.e. higher relative premium) in the close months if possible.
Edit: Sorry J, I didn't read your last post. It doesn't really matter if you have a put or call, and the direction doesn't matter either. If your long loses money your short will be cheaper to buy back. If your long makes money your short will be more expensive. You really want the stock to be stable and stay around your strike price. You want the short to be cheap when you close or roll.
jdoucet,
Here's a suggestion to try in your virtual trading. Try some calendar strangles during quarterly earnings season on issues where there's a relatively high skew (near term month's implied volatility (IV) is significantly higher than the next month). Sell the near month strangle and buy the next month's strangle at the same strikes. This position can also be looked at as an OTM put calendar (below) and an OTM call calendar (above).
By bracketing the underlying, you have a range b/t the strikes where the underlying will be profitable and possibly more so due to contraction in IV.
After you get a feel for the behavior of this position, consider ratioing the short legs (3:2 or 2:1) in order to capture more of the IV collapse.
There's a bit more to it than this but it's just a suggestion of a direction to explore and might be something that appeals to you. You'll have to get a feel for the price behavior of the respective options during IV contraction as well as getting very comfortable with how to manage the position, particularly if the underlying approaches a short strike and a ratioed leg comes into play.
In essence, you're betting on a neutral range (the wider the strikes, the better) and you're selling high IV premium to finance your lower IV long legs.
Spin
Here's a suggestion to try in your virtual trading. Try some calendar strangles during quarterly earnings season on issues where there's a relatively high skew (near term month's implied volatility (IV) is significantly higher than the next month). Sell the near month strangle and buy the next month's strangle at the same strikes. This position can also be looked at as an OTM put calendar (below) and an OTM call calendar (above).
By bracketing the underlying, you have a range b/t the strikes where the underlying will be profitable and possibly more so due to contraction in IV.
After you get a feel for the behavior of this position, consider ratioing the short legs (3:2 or 2:1) in order to capture more of the IV collapse.
There's a bit more to it than this but it's just a suggestion of a direction to explore and might be something that appeals to you. You'll have to get a feel for the price behavior of the respective options during IV contraction as well as getting very comfortable with how to manage the position, particularly if the underlying approaches a short strike and a ratioed leg comes into play.
In essence, you're betting on a neutral range (the wider the strikes, the better) and you're selling high IV premium to finance your lower IV long legs.
Spin
Why not do the put calendar above and the call calendar below the current price? A couple of quick checks on TOS shows that the cost about the same and the risk graphs appear to be identical, at least for the first expiration. Then if the stock moves up your call are still ITM and if it moves down your puts are ITM. You might even be able to roll into a diagonal.
I only just thought of this and haven't analyzed it very much. Maybe there is some obvious problem that I haven't spotted yet.
Jdoucet wrote:
/I've been running a few calendars in virtual trading and seem to be getting the hang of it a little bit. The problem is I'll pick a PUT spread and then the stock rises so my long puts lose value and I'm like "oops! don't want to do that". Then I'll choose a call spread and the opposite happens. A two dollar move has some catastrophic results on my long positions. I'm looking for slow moving, low volatility stocks. I'm practicing with Wal-Mart and the QQQQ's right now. Seems to me that Calendars are pretty good setups if you get them right./
Try Double Diagonals. I think this is a best strategy, far better than Calendars.
/I've been running a few calendars in virtual trading and seem to be getting the hang of it a little bit. The problem is I'll pick a PUT spread and then the stock rises so my long puts lose value and I'm like "oops! don't want to do that". Then I'll choose a call spread and the opposite happens. A two dollar move has some catastrophic results on my long positions. I'm looking for slow moving, low volatility stocks. I'm practicing with Wal-Mart and the QQQQ's right now. Seems to me that Calendars are pretty good setups if you get them right./
Try Double Diagonals. I think this is a best strategy, far better than Calendars.