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The Monkey Calendar
- Thread starter cdowis
- Start date
To the OP, your strategy is flawed.
I'm assuming you're shorting the back month and going long the front month for the calendar spread, then you're shorting a vertical call spread (so you're short the lower strike and long the higher strike).
Tomorrow, the stock spikes 50%.
You now have a near-full loss on both the calendar spread and the vertical.
A calendar spread is a non-directional trade.
A vertical call spread is a directional trade.
Your hedge makes no sense.
I'm assuming you're shorting the back month and going long the front month for the calendar spread, then you're shorting a vertical call spread (so you're short the lower strike and long the higher strike).
Tomorrow, the stock spikes 50%.
You now have a near-full loss on both the calendar spread and the vertical.
A calendar spread is a non-directional trade.
A vertical call spread is a directional trade.
Your hedge makes no sense.
Quote from cdowis:
Yep, but there is a difference in price.
Why should I pay more and get less? Call calendars are typically more expensive.
Ok, in that case you found a perfect arbitrage.
Short the call calendar, long the put calendar.
Let us know how that works out for you.
(I'm being sarcastic just in case you didn't realize).
You obviously don't know shit about how options and futures work.
Quote from mysticman:
Your critique is flawed. Why would you assume that a calendar spread is opposite to what it is?
Fine, let's assume he's long the front month, short the back month, which means he wants extreme volatility before the front month expires.
By expiration of the front month:
If the market stays flat, his vertical spread may have a profit or a loss, depending on many factors.
If the market plunges, he makes money on the short calendar, and makes money on the short vertical call.
If the market skyrockets, he makes money on the short calendar, and has a near full loss on the vertical call.
I don't see how a short vertical call spread acts as an adequate hedge in any way to either a short or long calendar spread.
"Fine"? That would imply that you realized you made the wrong assumption. But instead you continue to press forward with your mistaken critique of a short calendar based on your continued wrong assumption.Quote from demoship:
Fine, let's assume he's long the front month, short the back month, which means he wants extreme volatility before the front month expires.
So I guess I have to make it crystal clear and spell it out. His calendar = long calendar = long back month and short front month.
Perhaps your next critique can use the right strategy?
Quote from demoship:
Ok, in that case you found a perfect arbitrage.
Short the call calendar, long the put calendar.
Let us know how that works out for you.
(I'm being sarcastic just in case you didn't realize).
You obviously don't know shit about how options and futures work.
Get you head out of your a**, and do the actual numbers using analysis software. The effect of dividends is what causes the difference in price between call and put options.
Your sarcasm shows how little you know about options. I have been doing option trading for over ten years, and have studied the subject extensively.
FWIW, I have lost interest in this thread, so you can blast away with your hot air all you want.
Quote from cdowis:
The effect of dividends is what causes the difference in price between call and put options.
If you arbed a call calendar against a put calendar, you'd have a synthetic short in one month and a synthetic long in the other month. Holding the entire position to final expiration, you'd be holding net shares from the front month to the out month, and you'd see just enough dividends in cash to offset the "effect of dividends" on the option prices.
Because, y'know, they're equivalent.