I would argue that if testing a spread strategy, legging into the spread would be a questionable tactic, adding another variable to your methodology. Unless you can find a verifiable strategy to get better fills, you are adding an un-needed risk factor. Maybe better to just enter a spread when all the factors are suitable and the price is what you want.
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Low Risk/High Reward (60%+ per Year) Calendar Spread
- Thread starter jones247
- Start date
I would argue that if testing a spread strategy, legging into the spread would be a questionable tactic, adding another variable to your methodology. Unless you can find a verifiable strategy to get better fills, you are adding an un-needed risk factor. Maybe better to just enter a spread when all the factors are suitable and the price is what you want.
I'm looking for the IV to increase, as I selected options with a lower HV than IV. The bigger issue is theta working in my favor. I may consider Dan Sheridan's "guerrilla" strategy, as theta is the only cause for a quick profit.
Walt
Walt
Quote from Snowpro:
Walt,
are you still looking for a typical sideways trading issue with relatively low volatility?
Any other parameters you are finding helpful.
best regards,
SP
I agree, legging into the spread will cause additional risks, which may not be necessary for the success of this strategy...
Walt
Walt
Quote from yucca_mtn:
I would argue that if testing a spread strategy, legging into the spread would be a questionable tactic, adding another variable to your methodology. Unless you can find a verifiable strategy to get better fills, you are adding an un-needed risk factor. Maybe better to just enter a spread when all the factors are suitable and the price is what you want.
I'm selecting the ATM options for the swap strangles. My aproach is the same, regardless of a bull, bear or neutral market. I'm only focusing on profiting from theta & vega... I'll manage the positions until I'm able to profit by 25% - 50% of what I paid...
Walt
Walt
Quote from c.chugani:
what criteria is used to choose the different strikes in the call/put strangles? Does your selection of strikes depend on the main underlying trend? Or is your approach the same for bull, bear and lateral markets?
One personal observation.
1. Far backmonth options have little liquidity, so the quotes on the screen may not be very meaningful.
2. In terms of legging into the trade, I think another alternative is to place half your position and wait for market movement and then place more positions on as the price moves around.
We are talking several months, and there is no hurry. I initially placed a long term calendar at 380, and placed another one at 310. No need to "leg in". Just wait for price and volty to change for more favorable prices.
3. Call verticals change the risk profile. It decreases vega risk, and in this market hedges the down moves. The additional premium is a bonus, and no more risky than using covered calls.
1. Far backmonth options have little liquidity, so the quotes on the screen may not be very meaningful.
2. In terms of legging into the trade, I think another alternative is to place half your position and wait for market movement and then place more positions on as the price moves around.
We are talking several months, and there is no hurry. I initially placed a long term calendar at 380, and placed another one at 310. No need to "leg in". Just wait for price and volty to change for more favorable prices.
3. Call verticals change the risk profile. It decreases vega risk, and in this market hedges the down moves. The additional premium is a bonus, and no more risky than using covered calls.
I agree that the far backmonth bid/ask quotes are a challenge. However, I believe that the theta & vega benefits (if managed correctly) will offset the wide bid/ask gap.
I also agree that legging-in is quite risky. If I do it, I would incorporate an averaging-in strategy with it... similar to your suggestion of waiting a few days or weeks for a better pricing before entering the calendar spread again. I think averaging-in, as you suggest, is an excellent tool.
Walt
I also agree that legging-in is quite risky. If I do it, I would incorporate an averaging-in strategy with it... similar to your suggestion of waiting a few days or weeks for a better pricing before entering the calendar spread again. I think averaging-in, as you suggest, is an excellent tool.
Walt
Quote from cdowis:
One personal observation.
1. Far backmonth options have little liquidity, so the quotes on the screen may not be very meaningful.
2. In terms of legging into the trade, I think another alternative is to place half your position and wait for market movement and then place more positions on as the price moves around.
We are talking several months, and there is no hurry. I initially placed a long term calendar at 380, and placed another one at 310. No need to "leg in". Just wait for price and volty to change for more favorable prices.
3. Call verticals change the risk profile. It decreases vega risk, and in this market hedges the down moves. The additional premium is a bonus, and no more risky than using covered calls.
Walt,
First of all, i strongly suggest to visit cdowis's thread where we had some good points discussed on the calendar spread strategy.
http://www.elitetrader.com/vb/showthread.php?threadid=127805
Second, what you are suggesting is a double calendar spread which has its own limits (high vega) which is also discussed by cdo in that thread.
Third, i would suggest to take a look at the attachments I had put on page 18 of the above thread where you can see the comparisons of these strategies viz., calendar, dbl calendar, and especially double diagonal. Personally, I prefer dbl diag over dbl calendar but it may be a personal matter. However, look at the Greeks of these strategies, and the break evens on the attachments.
Lastly, have you traded the strategy you are suggesting? I think it is a lot better if you have really gone through some personal experience in managing the trades.
Hope you have taken a look at the CBOE free webinars by Dan Sheridan to get a feel for this type of strategy.
In the end, I do have a question for you, why are you going for the Dec/Jan spreads (almost 6 months out)?
First of all, i strongly suggest to visit cdowis's thread where we had some good points discussed on the calendar spread strategy.
http://www.elitetrader.com/vb/showthread.php?threadid=127805
Second, what you are suggesting is a double calendar spread which has its own limits (high vega) which is also discussed by cdo in that thread.
Third, i would suggest to take a look at the attachments I had put on page 18 of the above thread where you can see the comparisons of these strategies viz., calendar, dbl calendar, and especially double diagonal. Personally, I prefer dbl diag over dbl calendar but it may be a personal matter. However, look at the Greeks of these strategies, and the break evens on the attachments.
Lastly, have you traded the strategy you are suggesting? I think it is a lot better if you have really gone through some personal experience in managing the trades.
Hope you have taken a look at the CBOE free webinars by Dan Sheridan to get a feel for this type of strategy.
In the end, I do have a question for you, why are you going for the Dec/Jan spreads (almost 6 months out)?
Hi Thinkplus,
You're correct, some refer to it as a double calendar, whereas some refer to it as a strangle swap. I'll review the posts you referenced in the Monkey Calendar thread. I chose a long term spread (i.e. Dec/Jan) because of the option price convergence between the two months. Granted the problem is that the bid/ask spread is painful so far out. The gap in the bid/ask spread is really the weak link in this strategy. That's why I'm considering averaging-in for better pricing; however, I've yet to devise a safe method for averaging-in. I'm considering moving the spreads to about 2 or 3 months out, but first I want to fully test this method. I am actually testing this method, not just discussing it.
Walt
You're correct, some refer to it as a double calendar, whereas some refer to it as a strangle swap. I'll review the posts you referenced in the Monkey Calendar thread. I chose a long term spread (i.e. Dec/Jan) because of the option price convergence between the two months. Granted the problem is that the bid/ask spread is painful so far out. The gap in the bid/ask spread is really the weak link in this strategy. That's why I'm considering averaging-in for better pricing; however, I've yet to devise a safe method for averaging-in. I'm considering moving the spreads to about 2 or 3 months out, but first I want to fully test this method. I am actually testing this method, not just discussing it.
Walt