Newbie with fool proof strategy... or pipe dream? Why wouldn't this work?

[VTS]

I'm talking about if I assume that I will sell the long call at the same time the short call expires or is exercised or is bought back. I need to run this through amibroker...

As suggested earlier, you should just allocate a VERY small amount of money and actually do some trades. It won't take more than a month or two to realize how quickly and easily calendars can lose money.

We could tell you how and why it's not fool proof, but that's not the best way to learn. The best way to learn option trading is to get in there, again with VERY small allocations and learn from trial and error.

Very often the people who are willing and eager to "teach" you, are the very same people who don't know how to structure profitable trades and manage them.

In your case, error will very likely come quickly, and you will begin to develop an understanding and turn it into personal trading rules and systematic strategies that do work in the future.

Good luck sir !

 

[xandman]

I suspect the OP cut his teeth on calendars with stocks. An awareness of the forward curve is the necessary ingredient. Additionally, skew behavior is not as predictable though it seems to persist for longer durations.

 

[destriero]

Okay so I'm talking about calendar spreads...


Example:
February crude oil short ATM call
March crude oil long ATM call
net debit

after I wait a month or so, then I simply buy back the spread for a gain from the faster time value dissipation from the Jan call... if long call is ATM then if underlying price rises, falls, or stays the same then wouldn't implied volatility rise or stay the same assuming a u-shaped graph (strike on x-axis, implied vol on y-axis) and no big news...

Is it really that common for implied volatility to drop and eat away long call value MORE OFTEN than the gain from the differences in theta? When this does happen, one could set up stops that take into account time value differences at expiration and maximum implied volatility loss tolerance to minimize losses

And assume that I will sell the long call at the same time the short call option is bought back, expires, or is exercised.

What am I missing here? Am I missing nothing and simply relying on my assumption that the implied volatility won't take a nose dive? Is this a reasonable assumption for an ATM spread? (I understand that if it was out of the money and underlying price approached the strike price then implied vol would probably fall)

The 1M switch is contango as donnap states. It's +100 to 105 which is huge for CL in the 40s. You would want to use same strike if bullish CL. It looks good to you because of the contango, and no, the thing is not DN when trading ATM.

Neutral delta would be a 42/43 diagonal call. You're long vol, long the switch (futures calendar), and short gamma. Basically you want vol to increase; the contango to widen; and price to settle near the March strike. It requires stat and implied vol to diverge.

There is nothing special here -- it only looks good because the switch causes the March strike to be ITM.