The Monkey Calendar

I know this sounds arrogant, but I think this will have at least a small influence on option trading in the future.

I have never seen nor heard this stuff taught anywhere, and I think it is a very profitable and low risk way of trading.

But what do I know about such stuff. I am just a small, retail trader.
 
Quote from 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.

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I think you meant hedging Vega risk?
 
Quote from cdowis:
Oops. It was late at night.
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Most of your posts to this thread seem to have been done late at night.

You start with your "monkey" calendar without the monkey, and right away you get rid of the vertical and go with a straight calendar. Then you forget and think that you still have the vertical.

You don't report the value of your positions, refuse to make adjustments when needed, say your positions are profitable when they are in fact losing money, and finally confuse vega with theta.

What possible value could this be to others?
 
Quote from mysticman:

Most of your posts to this thread seem to have been done late at night.

etc
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If my comments are not useful to you, may I suggest that you put me on the ignore list, as I have done this with you.
 
Let me give a summary of what the heck I am talking about on this thread:

1. My trading plan uses calendars for income trading. I normally go 45 to 60 days out.

2. Assuming I am bullish on a particular market (RUT), I place the calendar above the market.

3. To protect myself on the downside, as a hedge, I place a short call vertical above the calendar.

The calendar is vega positive, the vertical vega negative. The calendar is delta positive, the vertical delta negative.

Both are theta positive.

If the market moves down, and rebounds upward, I can "fiddle around" and do a put vertical to complete an Iron Condor.

The RUT was a monkey calendar (except that I took off the vertical, and later put it back on). The IBM was something else, perhaps a diagonal, but basically a test to see how the vertical will hedge my position.

Both positions as profitable. The RUT calendar was opened at 755, and the original 770/780 call vertical at 270. The IBM calendar opened at 320, and the 135/140 call vertical 115.

My five positions, all of them are calendar and vertical combinations, are running around $5 in profit.

So, hopefully this clarifies things......
or I may have made things more confusing. So just ask if you have questions. Don't waste your time or mine with insults.
 
Quote from cdowis:


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")
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Are you suggesting this to be done in 2:1 ratio? (2 cal vs. 1 vert)
 
Quote from thinkplus:

Are you suggesting this to be done in 2:1 ratio? (2 cal vs. 1 vert)
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That seems to work here. You have to look at the P/L curve and see what gives you the most protection on the down move, without threatening you on the upside move. I am not looking to make a profit on the downside, just to contain my loss (hedging).

The calendars tend to be "sluggish" compared to the vertical, so the 2:1 ratio P/L curve looked interesting and seems to meet my objective. I also placed this in a low volty and don't really want to hedge my vega very much, so a 2:1 ratio also makes more sense when I expect volty to increase.
 
Basically you are looking to create, over the immediate time period, a flat PL line, and your profit comes from time decay rather than market movement. The biggest enemy to a position is market movement immediately after putting it on.

So you want a flat line over the short-term, and allow the PL curve to increase over the range of prices over the next few weeks. You want to avoid the "falling off the cliff" PL curve.
 
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