The Monkey Calendar

[cdowis]

I have some experience trading options. Got clobbered on the Iron Condor, made some money doing calendars only. I wanted to share something that I have not seen taught anywhere, and think you might find useful.

I call it the Monkey Calendar. Its "tail" supports the body of the calendar.

1. Place a bullish calendar, above the market. (the body)

2. Above the body, place a short call vertical. (the tail)

That's it.

The "tail" protects the down side of the calendar, AND it provides some hedge against vega risk (volty moves down) on the upside.

This is an interesting alternative to the double calendar.

 

[c.chugani]

Quote from cdowis:

I have some experience trading options. Got clobbered on the Iron Condor, made some money doing calendars only. I wanted to share something that I have not seen taught anywhere, and think you might find useful.

I call it the Monkey Calendar. Its "tail" supports the body of the calendar.

1. Place a bullish calendar, above the market. (the body)

2. Above the body, place a short call vertical. (the tail)

That's it.

The "tail" protects the down side of the calendar, AND it provides some hedge against vega risk (volty moves down) on the upside.

This is an interesting alternative to the double calendar.

By "above the body" do you mean higher strike prices?

Could you please give me an example of your strategy?

Thanks for yor help!

 

[Eliot Hosewater]

(Sorry if this has already been posted, I missed it if it has.)

I just ran across a paper published by UMASS professors H. Kazemi and E. Szado about "Collaring the Cube (i.e. QQQ)". They discovered that a collar consisting of a six month long put and a series of one month short calls outperformed the QQQQs with 1/3 the volatility.

http://www.optionseducation.org/ins...laring_cube.pdf

It would seem that this is a synthetic put calendar, but they don't even mention that.

They are also a bit light on the details of exactly what they do at expiration. For example, do they let the stock be called if ITM, or roll the calls for a loss?

I was also thinking that you could let the stock be called, then put on a whole new collar the next month, keeping the original longer term put in place. This would be similar to the monkey if I understand it correctly.

 

[cdowis]

RUT is at 732 on May 21.

Purchased 2x Jul/Aug 740put calendar (this is the "body", placed above the market price)

Sold 1x Jul 770/780 bear call spread. (the "tail")

The body is swinging above the ground (a bullish calendar), with the tail (short vertical) securing it from falling down, so to speak.

This is a pure option position, and can be placed in an small account. Obviously a collar is appropriate for larger account size.

My breakeven (a week before expiration) is 694 to 777 (752 near term). Gamma is fairly flat, and vega has been somewhat hedged, compared to the calendar standing alone.

 

[daniel5198]

Quote from cdowis:

RUT is at 732 on May 21.

Purchased 2x Jul/Aug 740put calendar (this is the "body", placed above the market price)

Are you sure it's the PUT calendar you buy?

 

[mysticman]

Quote from daniel5198:
Are you sure it's the PUT calendar you buy?

Yes that is a good question. The call calendar would be indicated.

A more serious problem is the use of the Jul/Aug calendar rather than the Jun/Jul calendar. Similarly the short vertical should be in June rather than July.... if time decay is at all important here.

I've looked at the graph and don't see a monkey or a tail, so I wonder if I am missing something. Could a graph be posted? The short vertical (tail) adds a bit to the profit, giving a slightly better downside breakeven, but other than that it does not seem to do much.

 

[mysticman]

Quote from Eliot Hosewater:
(Sorry if this has already been posted, I missed it if it has.)

This article has nothing to do with the subject of this thread (Monkey Calendar) so you should start a completely different thread for it. If you think the article might already been posted, it is quite easy to search for that.

A synthetic put calendar being equivalent to a collar trade means that the strike prices of the collar put and call would have to be the same, but this is not the premise of the article. Best to take your interests to a new thread.

 

[daddy'sboy]

Quote from mysticman:



A synthetic put calendar being equivalent to a collar trade means that the strike prices of the collar put and call would have to be the same, but this is not the premise of the article.

Different strikes for the long put and short call with long stock would be called a synthetic diagonal.
db

 

[cdowis]

Quote from mysticman:

Yes that is a good question. The call calendar would be indicated.

A more serious problem is the use of the Jul/Aug calendar rather than the Jun/Jul calendar. Similarly the short vertical should be in June rather than July.... if time decay is at all important here.

I've looked at the graph and don't see a monkey or a tail, so I wonder if I am missing something. Could a graph be posted? The short vertical (tail) adds a bit to the profit, giving a slightly better downside breakeven, but other than that it does not seem to do much.

1. I am certain that the put calendar is indicated. Why would I want to have a smaller breakeven, and less potential profit?

Just look at the graph. I never use call calendars, even on a double calendar. The numbers do not make sense.

2. Okey dokey. Do the Jun vertical if you think that is best. If the market moves up, it will perhaps give you more profit.

However, I prefer the greater protection that the Jul gives me for the down side, which is the whole point of this position. It is a hedge, after all. I am willing to trade profit for more protection.

 

[cdowis]

Another factor affecting my decision on Jun vs Jul is the volatility of the market. If this is a quiet market, I may go for the higher profit. If it is a rollercoaster, I go for the protection.