RIMM Double Reverse Calendars

Those 65/90 calendars couldn't be had for much of a credit. In any event, RIMM closed AH where it traded in the regular session.

I expect vols to drop 12 on the vol-line for July at the open. I was long the 75 June-July put spread from 2.30.

The vast majority of successful short calendars earn on gamma, not vega. You're long vols >200% in June, so you're looking for a huge increase in SV/IV.
 
Quote from atticus:

Those 65/90 calendars couldn't be had for much of a credit. In any event, RIMM closed AH where it traded in the regular session.
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Shouldn't you be off somewhere else, Sharing + Discussing Option Trades/Strategies??

:)
 
"Those 65/90 calendars couldn't be had for much of a credit. In any event, RIMM closed AH where it traded in the regular session."

On the basic 90/65 dbl RC, the credit was $2.98. Not great but workable. I was checking IV during the day and you could have gotten around $3.10 in the early afternoon today.

"I expect vols to drop 12 on the vol-line for July at the open. I was long the 75 June-July put spread from 2.30."

You're probably right about the IV drop in the am. At 55% IV for July (avg for p/c) and the underlying in the $74 - $77 range, I'll close the trade out. If it goes to 50% IV the profit almost doubles. If circumstances arise where I want to keep the remaining naked strangle, I probably morph it into an unbalanced long IC since August is not open. Any other ideas are welcome.

"The vast majority of successful short calendars earn on gamma, not vega. You're long vols >200% in June, so you're looking for a huge increase in SV/IV."


If you construct a risk graph of the position, you'll find that gamma has little effect on the profitability if the stock stays around the price where the dbl RC was initially placed. At large moves away from this price, gamma takes over and vega become less significant. Not sure what you mean in your last sentence.
 
Quote from bebpasco:

"Those 65/90 calendars couldn't be had for much of a credit. In any event, RIMM closed AH where it traded in the regular session."

On the basic 90/65 dbl RC, the credit was $2.98. Not great but workable. I was checking IV during the day and you could have gotten around $3.10 in the early afternoon today.

"I expect vols to drop 12 on the vol-line for July at the open. I was long the 75 June-July put spread from 2.30."

You're probably right about the IV drop in the am. At 55% IV for July (avg for p/c) and the underlying in the $74 - $77 range, I'll close the trade out. If it goes to 50% IV the profit almost doubles. If circumstances arise where I want to keep the remaining naked strangle, I probably morph it into an unbalanced long IC since August is not open. Any other ideas are welcome.

"The vast majority of successful short calendars earn on gamma, not vega. You're long vols >200% in June, so you're looking for a huge increase in SV/IV."


If you construct a risk graph of the position, you'll find that gamma has little effect on the profitability if the stock stays around the price where the dbl RC was initially placed. At large moves away from this price, gamma takes over and vega become less significant. Not sure what you mean in your last sentence.
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I am missing something. You're short the 65P/90C calendars? Would you mind defining the legs?

Gamma is an issue. It's tough to get a sense for it with a day to expiration, but you earn on stat-vol via gamma position. The ATM calendar's dgamma is positive within one sigma, and tails off as enter 2-sigmas. *ATM options* are -convexity on gamma/dgamma, but calendars are special in that regard. The ATM calendar gamma remains remarkably persistent, given the enormous vol in the June-series, even as it diverges from the strike. I am using the ATM calendar as an easy-reference. Your calendar would suffer as price approaches strike, so it doesn't matter whether I reference itm/atm/otm calendars.

SV/IV has to be a big number to earn. Position gamma is important as the short ATM calendar doesn't earn a dime inside the range on the ATM straddle *if you model vol as UNCH*.
 
Quote from bebpasco:

If you construct a risk graph of the position, you'll find that gamma has little effect on the profitability if the stock stays around the price where the dbl RC was initially placed. At large moves away from this price, gamma takes over and vega become less significant. Not sure what you mean in your last sentence.
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Gamma begins to decline as you exceed one deviation away from delta-neutrality, but peaks ATM. The gamma increases with the credit received. In all cases, the atm calendar gamma falls outside of one sigma up/down. Down&out skew would provide some additional gamma to the upside, but not an issue in RIMM, as there was no discernible skew.
 
Quote from atticus:

I am missing something. You're short the 65P/90C calendars? Would you mind defining the legs?

Gamma is an issue. It's tough to get a sense for it with a day to expiration, but you earn on stat-vol via gamma position. The ATM calendar's dgamma is positive within one sigma, and tails off as enter 2-sigmas. *ATM options* are -convexity on gamma/dgamma, but calendars are special in that regard. The ATM calendar gamma remains remarkably persistent, given the enormous vol in the June-series, even as it diverges from the strike. I am using the ATM calendar as an easy-reference. Your calendar would suffer as price approaches strike, so it doesn't matter whether I reference itm/atm/otm calendars.

SV/IV has to be a big number to earn. Position gamma is important as the short ATM calendar doesn't earn a dime inside the range on the ATM straddle *if you model vol as UNCH*.
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No problem

+ is long, - is short

+27 Jun 90C 0.78
-27 JuL 90C 2.45

+27 Jun 65P 0.33
- 30 Jul 65P 1.64

+ 3 Jun 80C 3.35

All positions put on with stock trading between 77.75-78.50 (approx.) The Jun 80Cs were placed to even out the higher gamma risk if the underlying moved towards the call strike. Could have used Jun 85Cs or Jul 85Cs but liked the risk profile better with the Jun 80s. Also, had an upwards basis on the stock. Turns out, the 80Cs were a waste of money.

Agree, this dbl RC suffers as the price approaches the strikes. If the underlying stays in the range indicated in my last post, you get a nice return if IV cooperates. A move past the strikes also has a nice return but different magnitude.

You're over my head on the last paragraph. Bring the explanation down to a level that most of us can understand. lol!
 
Quote from bebpasco:

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?
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The problem with deep OTM calendars is the premium paid on the expiring option if >2sigmas [in this case] don't materialize. Then you're sitting on a short strangle at a poor-price. Granted, you have the blowout protection afforded by the front-month, but you're still sitting on a cheap strangle after the vol has seen the greatest decline.
 
Quote from atticus:

SV/IV has to be a big number to earn. Position gamma is important as the short ATM calendar doesn't earn a dime inside the range on the ATM straddle *if you model vol as UNCH*.
More...

I was stressing the importance of gamma. An ATM long calendar will earn within the range of the front-month straddle, give or take. It's dependent of the term-structure of vol, time to exp, etc. Generally it's a good rule of thumb to assume that a long/short calendar will earn inside/outside the front month, ATM straddle range.

An ATM calendar's gamma peaks ATM; which is why the RIMM long 75 calendar will see a double tomorrow if we close at 75, even with a drop of 12 on the July vol-line.
 
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