Thoughts on ITM calender calls

T

thebubs

I have been buying calender calls lately with some success. What are the experts thought on ITM calender calls, it seems like a nice wager if you see the stock going lower in the near term. Seems like a "safer" way to go then doing a put spread, thought being if you are wrong the diffrecne between the two wont change dramatically if it continues to go up. Seems like a nice short-term hedge
 
A call calendar is equivalent to a put calendar at the same strike, the jelly roll keeps them inline. So there's no real advantge to doing an ITM call calendar rather than an OTM put calendar. In fact, an OTM put calendar is likely to have less slippage.
 
but with a put calender you a looking for a continual downward movement versus a ITM call calender where you are looking for a short term down and then a recovery
 
Not following you. A put calendar is identical to the call calendar at the same strike price, period. What happens after the front month option expires is a completely new trade.
 
Quote from thebubs:

I have been buying calender calls lately with some success. What are the experts thought on ITM calender calls, it seems like a nice wager if you see the stock going lower in the near term. Seems like a "safer" way to go then doing a put spread, thought being if you are wrong the diffrecne between the two wont change dramatically if it continues to go up. Seems like a nice short-term hedge
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Sure it's reasonable safe because for the near term, an ITM calendar won't make or lose you very much.
 
Quote from thebubs:

but with a put calender you a looking for a continual downward movement versus a ITM call calender where you are looking for a short term down and then a recovery
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Not true. With a calendar you are looking for expiration at/near the strike. After the near term leg is covered cheaply or expires, then you want the directional move. Any sizeable directional move in either direction that heads OTM is NOT good for calendars.
 
My general rule when putting on calenders is this:

1. If there are dividends coming up, stay away from call calenders. You do not have the dividend risk with puts because no one is going to exercise a put to grab a dividend.

2. I always sell the call or put that is OTM. Such as if XOM is trade at 71 and I think it will stay around the 70 strike. I will sell the put calender because the OTM puts will decay a little faster than the ITM calls will.
 
If you do delta neutral (ratio) calendars, the ITMs will always be LongMore spreads, whereas the OTM calendars will always be ShortMore.

This is due to the delta of the front month ITM options exceeding the delta of the back month. It's vice versa for OTM.
 
Quote from mike007:

2. I always sell the call or put that is OTM. Such as if XOM is trade at 71 and I think it will stay around the 70 strike. I will sell the put calender because the OTM puts will decay a little faster than the ITM calls will.
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huh? The 70-strike call/put thetas are equivalent. Also, you're long the calendar.
 
Quote from thebubs:

I have been buying calender calls lately with some success. What are the experts thought on ITM calender calls, it seems like a nice wager if you see the stock going lower in the near term. Seems like a "safer" way to go then doing a put spread, thought being if you are wrong the diffrecne between the two wont change dramatically if it continues to go up. Seems like a nice short-term hedge
More...

Calendar is one of my favorites, it gives me the freedom to cover the near term leg if conditions permit.

I put it on if I am overall bullish on the underlying, but not sure
about the timing. More than once, waiting for the near time to expire have been mistakes. Close the near terms once their values drops signifcantly.
 
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