Yea I agree some have some pretty wide spreads. However if you sit there you should get filled. At least thats my experience. It can be a challenge getting out tho
The calendar spread
- Thread starter TheBigShort
- Start date
It looks to me that the best way to implement a calendar spread is to buy it when you believe you can price a back month event better than the market. It does not have to be a big event like earnings, it can be something much smaller that will only give the back month a few vol points. Does anyone have ideas? You can also do relative value and buy when implied forward is near lows (more of a buy and hope). This usually offers good r/r tho.
+1. Succinctly put.
Like with any relative value strategy, execution is very important here. You can leg it, work it in COB or quote it with a dealer (last one available to institutional clients only).
Closed nflx for 1.60 today. Nice gainer. I put one on JPM and NKE. I think event vol will increase. If your still at work.... G BBTA 1924 <GO>. Switch it from Chart to Table.
I'm not to sure legging is worth the .02 cents I might gain.
If I do leg a spread, should I first get into the one that is least liquid and then the other or long first short leg second regardless of liquidity?
Appreciate your answer. I may do it depend on many factors: If I have very strong convictions and calculated the moves would overcome or > volatility, based on analysis and fundamentals etc.(GILD, BMY, DXCM...). Of course my win rate is only about 50%.
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Props to you for being convicted enough to be willing to lose 75% of your large long premium in minutes to hours.
- But the strangle/straddle trade would be directional based - not IV based.
- The drop in IV is irrelevant.
The price you pay is IV based. I still don't understand how you think strangles straddles are directional.
Let me explain this in simplelist terms. If you buy a stock because you think it will go up that is directional. You buy it for 100 and sell it for 101 you make money.
If you buy strangle/straddle you need a BIG move in a SMALL period. The word BIG and SMALL are not directional words.
If you have a directional bias ie. LULU will go up. You buy the stock because as long as it goes up 1 penny you make money. If you think LULU will move up $10 tomorrow. That is a idea that LULU will experience an increase in volatility to the upside. Now if the call is priced for a $10 move. And you buy that call you lose money EVEN if your DIRECTION was right! So for the love of God, strangles and straddles are directional plays!!!
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Strangles/straddles are directional trades and IV trades. But mostly directional trades.
- XYZ at $100
- Earnings next month.
Directional trader buys a strangle/straddle expecting the stock to move more than enough to offset the cost of the position - he will most likely enter trade close to earnings and exit after earnings. He doesn't care about IV.
Volatility trader buys a strangle/straddle expecting the stock to trade flat but IV to increase as earnings gets closer - he will exit before earnings. His intention is to capture the increased IV.