Could you further explain?
Root time in term structure
- Thread starter TheBigShort
- Start date
"...but Ill most likely just be selling event vol and buying non event vol(if thats even a term)."
It's a *great* term.
The vol you are seeking to map is IV, associated with the option prices expiring up-to-but-not-after that point in time. If you take a single strike (or the short strike of a spread you might wish to write) and graph that out over a half-dozen expiries, you'll see *exactly* what you're looking for, and when you might wish to target. And if you look at the associated news/data/events calendars, you'll likely pick up on what causes that surge/vacuum in vol. Bottom line? You're on the right track.
Could you give me an example of a time you put on a calendar spread?
This makes perfect sense, thank you Kevin
Well, think about it. Your principal risks are gamma and Vega - so you want to put on a calendar when you think your possible gains on Vega would exceed your possible losses on your short gamma. That implies that you’re buying the Vega leg cheap(er) than you’re selling the gamma leg.
Normal term structure is upward sloping and vol is mean reverting. So when vol spikes and I buy a calendar because the term structure is inverted, I find the calendar losing money on both gamma AND Vega because the back month vol (most of the Vega) decreases, and the relief rally kills me because I am short more gamma in the front month. However conventional wisdom would be to buy that calendar (short expensive vol buy cheaper back month vol, because the term structure will go back to normal levels). This is why i would love an example of when to put on a calendar. Again, thanks for your input santa
(From the post to which you replied (but did not in fact read??))
...If you take a single strike (or the short strike of a spread you might wish to write) and graph that out over a half-dozen expiries, you'll see *exactly* what you're looking for, and when you might wish to target...
WTH. I recall posting a study on calendars sometime over the past year, but it could be longer.
Meh. This is what I do when I get bored/desperate in vertical land....
https://www.elitetrader.com/et/thre...near-term-far-term.310075/page-2#post-4467797
Last edited:
(From the post to which you replied (but did not in fact read??))
...If you take a single strike (or the short strike of a spread you might wish to write) and graph that out over a half-dozen expiries, you'll see *exactly* what you're looking for, and when you might wish to target...
WTH. I recall posting a study on calendars sometime over the past year, but it could be longer.
Meh. This is what I do when I get bored/desperate in vertical land....
https://www.elitetrader.com/et/thre...near-term-far-term.310075/page-2#post-4467797
LOL tom I read it a few times!!!! I was just a bit confused. So let me ask a more specific question about your post. I wish to write next week expiry on spx. So far so good. Now I look at all the other maturities on SPX. And graph multiple calendar spreads. I am still not sure what I am looking for. Because an expiry might be more expensive/cheap because of an event/non event. Calendars are alot more complex then people make it seems because of the difference in 2nd order derivatives between maturities. If one of you kind lads could give a specific example of trade you did that would be GREAT
Also thanks a great deal for posting that spread sheet. I will review it in detail when i get on a computer(From the post to which you replied (but did not in fact read??))
...If you take a single strike (or the short strike of a spread you might wish to write) and graph that out over a half-dozen expiries, you'll see *exactly* what you're looking for, and when you might wish to target...
WTH. I recall posting a study on calendars sometime over the past year, but it could be longer.
Meh. This is what I do when I get bored/desperate in vertical land....
https://www.elitetrader.com/et/thre...near-term-far-term.310075/page-2#post-4467797
- You will never get a real-time trade or specific trade example on ET.
- You will only get theory and what would have worked last week.
That's all I'm looking for. The thought process on a trade