Thoughts on ITM calender calls

[MTE]

Quote from acen1975:

just use a calculator.
last week,with the fall of S&P from 1011 to 980 within couple days,volatility rose from 24 to 29,which is 20%.
so put the numbers in the calculator-a drop of 30 ticks,and change the volatility-once 24,once 29.......
and use let say 900 strike of the spread......you will be surprised.....

as you know time spreads are also volatility spreads-when the spread is ITM there's almost no extrinsic value-the deltas are close to 1,so IV almost doesnt make any good or damage to the spread.........but if the spread is OTM with 100% extinsic.....is totally different story.
IV kicks in strong.
notice that i am talking if the move is small,and IV rises.....if the move goes all the way to the strikes,it really doesnt matter-than it will be the same,but not during the move,when the spread is still away-in that case the value of the spreads will be slightly different,and this difference will be accounted for,from the change in IV

I suggest you read up on Put-Call Parity before continuing your argument.

 

[acen1975]

Quote from atticus:

This is 100% inaccurate. Please model any same-strike SPX put and call calendar to expiration. They are completely fungible.

is it?
why dont you model it,but put different volatility into the model.....
even at expiration there might be a difference-at exp. the short ones are at 0 vol-doesnt play any role.......but the longs?
you have one OTM put and ITM call.....
with a rise in IV ITM call will be the same prise......but OTM put will gain.....
wanna bet?

 

[atticus]

Quote from acen1975:

is it?
why dont you model it,but put different volatility into the model.....
even at expiration there might be a difference-at exp. the short ones are at 0 vol-doesnt play any role.......but the longs?
you have one OTM put and ITM call.....
with a rise in IV ITM call will be the same prise......but OTM put will gain.....
wanna bet?

I'll bet your limit. PM me for details and acceptance.

 

[acen1975]

Quote from MTE:

I suggest you read up on Put-Call Parity before continuing your argument.

you are taking me for a spin?
you kiding?
and i would suggest you read up on vertical and vorizontal IV skews..
and what, let say ,a volatility smile might do to these spreads
and then we will continue about the put call parity.
a begginer would say that these spreads are different.
a experiance trader would say they are the same
a veteran would agree and disagree with both the beginer and the expirienced one........
that the world of options..thats why i love it.
in your case you are right az much as you are wrong

 

[spindr0]

Quote from acen1975:

just use a calculator.
last week,with the fall of S&P from 1011 to 980 within couple days,volatility rose from 24 to 29,which is 20%.
so put the numbers in the calculator-a drop of 30 ticks,and change the volatility-once 24,once 29.......
and use let say 900 strike of the spread......you will be surprised.....

as you know time spreads are also volatility spreads-when the spread is ITM there's almost no extrinsic value-the deltas are close to 1,so IV almost doesnt make any good or damage to the spread.........but if the spread is OTM with 100% extinsic.....is totally different story.
IV kicks in strong.
notice that i am talking if the move is small,and IV rises.....if the move goes all the way to the strikes,it really doesnt matter-than it will be the same,but not during the move,when the spread is still away-in that case the value of the spreads will be slightly different,and this difference will be accounted for,from the change in IV

Are you a poor factory worker who successfully took ET's overnight ESOL crash course? Your broken English and staccato grammar have improved unbelieveably! If I didn't know better, I'd bet that we were discussing risk free trading!

And FWIW, the numbers that you tossed out gave nearly identical results (one calendar gained a penny more than the other). Nice try tho...

Have you considered ET's smoke and mirrors course?

 

[MTE]

Quote from acen1975:

you are taking me for a spin?
you kiding?
and i would suggest you read up on vertical and vorizontal IV skews..
and what, let say ,a volatility smile might do to these spreads
and then we will continue about the put call parity.
a begginer would say that these spreads are different.
a experiance trader would say they are the same
a veteran would agree and disagree with both the beginer and the expirienced one........
that the world of options..thats why i love it.
in your case you are right az much as you are wrong

Both the front and back month calls and puts are at the same strike, so they are tied together by put-call parity. Hence the front month call and put will trade at the same IV, and the back month call and put will trade at the same IV. A volatility smile is completely irrelevant here.

 

[acen1975]

Quote from atticus:

I'll bet your limit. PM me for details and acceptance.

i play this all the time.because when the oil fall,it is usually supported with widening the contango between the futures,i order from the pits the local to produse me DITM calls,instead of OTM puts,because electonicly you cannot buy them-no liquidity so deep.
so i kind of had some expierience with the time spreads.......
i perfectly know that MM is "producing" them by selling OTM put spread.....at the moment is the same.....but no really later,believe me.....

 

[atticus]

Quote from acen1975:

i play this all the time.because when the oil fall,it is usually supported with widening the contango between the futures,i order from the pits the local to produse me DITM calls,instead of OTM puts,because electonicly you cannot buy them-no liquidity so deep.
so i kind of had some expierience with the time spreads.......
i perfectly know that MM is "producing" them by selling OTM put spread.....at the moment is the same.....but no really later,believe me.....

ES or SPX Sep 18th 1000 put and call calendar, traded at mid today and priced at expiration. They will gain or lose within 20 cents of each other (microstructure variance), marked to mid at inception and the close of LTD, or I lose the bet.

Take the wager?

 

[spindr0]

Quote from MTE:

Both the front and back month calls and puts are at the same strike, so they are tied together by put-call parity. Hence the front month call and put will trade at the same IV, and the back month call and put will trade at the same IV. A volatility smile is completely irrelevant here.

You're always so concerned with details

 

[acen1975]

Quote from MTE:

Both the front and back month calls and puts are at the same strike, so they are tied together by put-call parity. Hence the front month call and put will trade at the same IV, and the back month call and put will trade at the same IV. A volatility smile is completely irrelevant here.

bingo-they trade with the same IV,OK.
but as you know OTM time spread has 100% extrinsic,and ITM almost 100% intrinsic,right?
so the IV change doesnt reflect almost at all at the ITM spread,but does on OTM one.
OTM time spead is very sensative to a IV change,the ITM is not.
you said it-lets look you way-if the IV is the same,OTM spread-the short option is cheaper than the long-so the spread gains value-the long option becomes more expensive,than the short one,not just only from the bigger delta,that apriciates the spread,but olso from the spike in IV.
ITM spread apriciates the same way from the move-you got the same gain from the deltas,as the OTM one,cause they are syntetics,but the gain of the IV of the spread is SMALLER ,than this of the OTM one,because OTM options are more sensative to IV than ITM.
and even they are syntetics,the IV spike will be a plus for the OTM one.