RIMM Double Reverse Calendars

B

bebpasco

Might be a little late with IV dropping the last hour but look at some dbl RV Cal for RIMM.

I put on a 90c/65p dbl RV unbalanced on the put side by a ratio of 10:9 with a long 80c kicker. Assuming July IV drop to 50% after earnings release.
 
Was that a Jun 80c kicker?

Nice looking risk graph if 50 IV is attained. I think that might be a bit optimistic but who knows?
 
Hi. Last earnings (think it was March/April), RIMM jumped 28 points to the upside. This position benefits from a strong move and also a drop in volatility? Where's the risk??? I'm trying to find it.
 
Quote from Kedwards:

Hi. Last earnings (think it was March/April), RIMM jumped 28 points to the upside. This position benefits from a strong move and also a drop in volatility? Where's the risk??? I'm trying to find it. [
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Yep, it benefits from a strong move and/or a drop in volatility. In general, these are W shaped positions with the inside maximum loss (the bottoms of the W) at the strikes. If it's an overwritten position, the outside tops of the W reverse down further away (outside) from the strike where the net delta of the short strikes exceeds that of the long strikes.

It's a lot clearer if you look at a risk graph :)
 
Thanks spindr0, yeah i constructed it in TOS and adjusted for a change in volatility.....but it seems too easy? How can you profit from a large move OR a drop in volatility? No free lunch?

Although there are loss areas in the bottoms of the W, I'm guessing that this position is meant to be offset sometime Friday morning after the dust settles....in which the risk profile still shows a profit, as long as volatility drops.

But it still seems like free lunch??

I'm missing something, but it is still a good looking position nonetheless.
 
Quote from Kedwards:

Thanks spindr0, yeah i constructed it in TOS and adjusted for a change in volatility.....but it seems too easy? How can you profit from a large move OR a drop in volatility? No free lunch?

Although there are loss areas in the bottoms of the W, I'm guessing that this position is meant to be offset sometime Friday morning after the dust settles....in which the risk profile still shows a profit, as long as volatility drops.

But it still seems like free lunch??

I'm missing something, but it is still a good looking position nonetheless.
More...


No free lunch. If the expected drop in the far month IV does not materialize as expected, the risk graph B/E line shifts upward and your expected return can/is reduced substantially.

An upside to the position is the ability to trade the naked strangle after the short month positions are closed/expired.

Spin mentioned that the after-event 50% IV may be wishful thinking. If there is a large +/- move, IV will more than likely stay high on Friday. Depending on where the underlying is trading, this opens up the possibility of converting the position to a long or short IC, a double calendar/diagonal (either 1:1 or ratio), or something else.

Any thoughts?
 
Quote from Kedwards:

Thanks spindr0, yeah i constructed it in TOS and adjusted for a change in volatility.....but it seems too easy? How can you profit from a large move OR a drop in volatility? No free lunch?

Although there are loss areas in the bottoms of the W, I'm guessing that this position is meant to be offset sometime Friday morning after the dust settles....in which the risk profile still shows a profit, as long as volatility drops.

But it still seems like free lunch??

I'm missing something, but it is still a good looking position nonetheless.
More...
There is no free lunch. There are profit areas. There are loss areas. There is no riskfreetrading :)

It's like a Goldilocks and the Three Bears story. Too much move is not good. Not enough move is no good. You want just the right amount :)

A noob might look at the position at the close and compare it to the opening after the EA and judge the performance by a simple glance at the premium price change. In and of itself, that's the performance. But if you know where the inflection points are (maximum gain and loss areas), you can use the stock during after hours and in the pre-market to lock in gains and prevent loss further loss.

And then there's the exit. If you're not spooked by legging out and you're disciplined, you can also take advantage of the IV contraction pattern in the AM. Trading is something very different from placing a position and watching it collect dust for a few months :)
 
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