SURE WIN : Calendar and Reverse Calendar Spread

Opt789,

Thanks for taking the time to post your detailed answer. I will have to do some additional research on PM.

I have done a bunch of RCs in the past, some with great results, others so-so. The main plays I have done have been "event-related" ones (earnings, FDA announcements etc.) where I have only held the position a day or two.

Yep, you are correct, if we get aggressive and we are wrong (about timing of event, extent of volatility collapse, extent of move on underlying) it can be a novel way to lose our money very quickly. LOL

Thanks again.

AZD

Quote from opt789:

AZD,
Portfolio Margin is a change in the rules that gives the retail broker the right to charge you the same haircut requirement as an option market maker. As we have seen from IB already, they are making you cover more than the minimum and have concentration limits. For specifics I would suggest you contact the broker, you can also use IB's demo system on their site. I am guessing every broker will do things a little different but it is still too early to tell. By the way, you have to maintain 100k so you shouldn't even think about it unless you have at least 150k.

If you do not understand the methodology of the OCC's TIMS Risk Based Haircut requirements then you should just stick to Reg-T because you will be looking for simple answers to your margin questions and there are no simple answers. Portfolio margin, with regard to many option positions, will change each and every day, sometimes it will change dramatically and you wont know why (unless you understand TIMS).

Yes you can do reverse calendars, yes it will appear that you can do a lot of them for not much margin, but then your margin will change more and more. I would not recommend using PM unless you have your own dynamic risk analysis software to show you every possible outcome of stock and vol movement over the life of the position. Otherwise you will find yourself constantly out of line with the new rules and your broker will be liquidating your position. Even if you have the software you still need to understand TIMS, you may be unpleasantly surprised when the TIMS system changes your requirements one day without your basic risk software anticipating it.

If you think that reverse calendars are some new strategy that can be exploited for easy gains then you need to do a little more studying. Every market maker and prop trader (that works at a firm that allows options) has been able to do them for a very long time. There are many possible outcomes that cause you to lose money, and if you try to maximize margin then you can just lose all your money that much faster.
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Quote from optioncoach:

Spin.. was going to send out a search party for you....
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I was lost and now I am found!

Quote from domestic:

i was there from the beginning. you hung in longer; i guess you have more patience than me. we had talked before, i just don't remember my handle. i will say, all conversations were constructive and civil!
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Thanks for the kind words. It was part of my parole agreement!

Quote from Wayne Gibbous:

I was there from nearly the beginning. Used to be a decent forum. Much better than any other YHOO msg board imo. I remember Spin, Virginia and much later, op coach. And remember that scammer Joshua Fry?
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LOL. Joshua Fry was a real piece of work. Vehemently defending his option posts while reeling in victims for his financial scam. I wonder if he found a wife named Bubba during his Federal vacation? (wink)
 
Hi everyone,

I remember most of you from the Yahoo days and was hoping to tap into the knowledge of the greeks that most of you have. A theoretical question has surfaced that I could not find any direct way of confirming the correct response. The analogy is as follows:

Which of the following best expresses a relationship similar to Delta : Price??

a) Gamma : Delta
b) Vega : Volatility
c) Theta : Time
d) Rho : Interest Rate
e) None of the above.

I have strong inclination towards (b) since delta measures the rate of change in option price relative to a change in the underlying's price and vega measures the rate of change in the option price relative to a change in the underlying's volatility.

I'm nixing the other choices because Gamma : Delta expresses an indirect effect on options price. Gamma affects delta which affects price, but does not relate directly to price as in the analogy. All the others measure a change relative to some other external factor (time decay, rates).

Please let me know if my logic is correct.

Many thanks in advance.
 
Quote from optioncoach:

Must be a take home exam lol....
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It is!!! I feel like I nailed everything else, but the 90% pass criteria makes me second guess myself.

I swore I would never take another exam after college...never say never right...
 
Probably closer to a)

Delta: amount Op Price changes per 1pt change in underlying.

Gamma: amount Delta changes per 1pt change in underlying.

But then, I could be wrong...I usually am! :D
 
I agree with the above.

Delta dictates how much the price of the option will change wit a $1.00 change in the price of the underlying.

Gamma dictates how much delta will change with a $1.00 change in the price of the underlying.

The other relationships do not follow. IN other words, theta does not dictate how much time will change and rho does not dictate how much interest rates will change.

Quote from Optionspoet:

Hi everyone,

I remember most of you from the Yahoo days and was hoping to tap into the knowledge of the greeks that most of you have. A theoretical question has surfaced that I could not find any direct way of confirming the correct response. The analogy is as follows:

Which of the following best expresses a relationship similar to Delta : Price??

a) Gamma : Delta
b) Vega : Volatility
c) Theta : Time
d) Rho : Interest Rate
e) None of the above.

I have strong inclination towards (b) since delta measures the rate of change in option price relative to a change in the underlying's price and vega measures the rate of change in the option price relative to a change in the underlying's volatility.

I'm nixing the other choices because Gamma : Delta expresses an indirect effect on options price. Gamma affects delta which affects price, but does not relate directly to price as in the analogy. All the others measure a change relative to some other external factor (time decay, rates).

Please let me know if my logic is correct.

Many thanks in advance.
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Thanks for the responses guys. What you are saying makes sense. I don't know why I didn't pick that up. I guess I had tunnel vision once I started focusing on the relationship with the underlying.

I'm glad I asked! Thanks again.
 
Quote from optioncoach:

Must be a take home exam lol....
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It's taken directly from a Portfolio Margin qualification test from a popular broker.

Question #12 in fact.

The analogy was not DELTA : PRICE, but DELTA : THEORETICAL PRICE.

So, did they give you Portfolio Margin?
 
Well, delta is the first derivative of the price function, and gamma is the first derivative of the delta function, so I would go with answer A.
 
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