The Monkey Calendar

[cdowis]

Quote from mysticman:

You must be drinking some kind of potent juice to think that your IBM 135 put calendar is profitable. You put it on for a 3.40 debit (if you were lucky) on 5/30 and it is now worth 2.40. Wake up. You have lost at least $1 or about 30%. You should have adjusted it days ago.

If you had taken my suggestion for opening another calendar at the 125 strike you would be rolling in money.

You think you hedge gamma? Wake up again. With your long-dated options you have practically no gamma risk in your position.

1. I said this was a test position.

2. Today it is around break-even, the same as when I placed the trade. So, the market has made a major move down and you are complaining. I shudda made some magical adjustments and I would be "rolling in money".

You are simply amazing.

3. Without the vertical, it would be -$75, and quickly going below $100 with a point or two further downside.

4. My trading plan is based on THETA, not gamma, as I said before. When the market is moving, I am simply trying to keep my head above water as expiration approaches.

So, yes, for the spec traders, this is a great market, but not for the delta neutral guys like myself.

 

[cdowis]

Quote from IV_Trader:

Clodis , close this thread and open a new one. Outline proposed position. Show how/why this particular position will have the best/better r/r if you are right on future price or vols directions. Your replies like “we shell see” are thread’s killers…not too much left to argue or add from this point.
Good luck with your current trade

Who are you talking to?

Why don't you open a thread on directional trading. My trading is based on theta, and market movement is my enemy. This position is to hedge the calendar against severe down moves until theta makes it profitable.

My calendars are protected, thankyouverymuch, and I patiently await theta to reward me. One of my trades, the RUT, has been very good to me -- almost 20% yield, and the other trades are still waiting.

Some traders got their lunch eaten the past few days. I am doing fine, thank you.

If you are not a delta neutral trader, my positions may not make sense to you, and I understand your frustration.

 

[cdowis]

This thread is for those traders who use the Iron Condor, and Calendars, Fly, etc.

This is a means to adjust the calendar without adding a second one (double calendar). I am also looking at it where I may be able to place a calendar in a high volty environment, because the vertical hedges the vega risk.

 

[50_Bip]

Great thread and interesting strategy - please keep it going.

Quote from cdowis:

This thread is for those traders who use the Iron Condor, and Calendars, Fly, etc.

This is a means to adjust the calendar without adding a second one (double calendar). I am also looking at it where I may be able to place a calendar in a high volty environment, because the vertical hedges the vega risk.

 

[cdowis]

As I said, I had taken off the vertical from the RUT, and a day or so later it moved sharply down.

But, because of the positioning of the calendar (at 740), it was making money.

Yesterday it dropped some more, putting the entire position at risk.

So, I looked at placing the double calendar, but that looked very ugly. The Jul 770/780 call vertical looked pretty safe on the upside, and gave me some protection on the downside, so I put it on at 1.93 (mid price was 2.00 to 2.05)

I can now sleep at night.

 

[mysticman]

Quotes from cdowis:

1. I said this was a test position.

What difference does it make whether it is a "test". Whether test or real, you are losing money.

Why don't you tell us what the 135 calendar is worth? I told you yesterday what it was worth, and you didn't disagree. So that means you lost money, or are you now smoking something as well as drinking java juice? If you are really serious you will state what the calendar cost you and what it is worth today.

2. Today it is around break-even, the same as when I placed the trade. So, the market has made a major move down and you are complaining.

Who's complaining? I'm simply telling you to wake up and realize you are under water. Stop saying "It's fine".

3. Without the vertical, it would be -$75, and quickly going below $100 with a point or two further downside.

Must I remind you that you chickened out and bought back the vertical before the weekend? It IS without the vertical. What else COULD it be? The vertical is GONE. Forget about it. All you have had left for weeks is the 135 put calendar.

4. My trading plan is based on THETA, not gamma, as I said before.

Quote from cdowis in this thread on page 8:
"My trading plan is to hedge gamma risk, and rarely do I make money on it."

Obviously you may wish to correct that statement about your plan being to hedge gamma.

 

[mysticman]

Quote from cdowis:
This is a means to adjust the calendar without adding a second one (double calendar).

What is the "means" you are talking about? You haven't done any adjustments.
You started with a calendar and a vertical, so where are your adjustments?

 

[cdowis]

Quote from mysticman:

What is the "means" you are talking about? You haven't done any adjustments.
You started with a calendar and a vertical, so where are your adjustments?

I am talking about two *******DIFFERENT******
positions. The RUT and the IBM.

I really am trying to be polite, but I am not your mother, and I am not interested in spoon feeding you. Go back and read my posts.

 

[cdowis]

FWIW, the IBM calendar and vertical shows this morning about a one cent profit, or breakeven. The RUT is approaching $3. I have three other positions which have about $1, so about $4 total.

To put this into context, the RUT is the largest position in my portfolio and less than $5k in total risk.

 

[cdowis]

There seems to be alot of people following this thread, so let's talk some more.

1. Hedging theta risk.

For those who don't know what this means, it is the risk that volatility will change. Calendars are theta positive, so a decrease in volty is bad, and an increase is good.

Now, a credit spread is negative theta (exactly opposite of the calendar spread), so, among other things, it can hedge the theta risk of the calendar.

A call credit spread is especially interesting because, as it goes up it increases in value, BUT since it has negative theta, in a market moving up, volty tends to decrease. It balances some of the premium increase.

The call spread, as you have read in this thread, is a hedge for the calendar moving down too much, so if the market goes up, it's not too bad.

2. Averaging down.

I will get alot of very angry posts on this topic, but here goes.

If I am generally bullish on a market (e.g. BIDU), I would like to buy the calendars as they get cheaper.

"But what happens if the market continues to go down. That is a cardinal rule of trading that you do not average down."

That is another function of the credit spread. It allows me to add to my position while hedging against further movement down.

As Buffett said, "If I buy a stock at $100, and later at $90, why would that increase my risk."

I have a Dec/Jan BIDU calendar, and it moved down. After placing my hedge, it would be sensible to add to the position with the cheaper calendars, assuming that I am long term bullish.

It has some of the characteristics of a covered call, does it not? But the margin requirement allows for the small investor to participate. I can roll over my call credit spread over the life of the position.