Time is on Your Side - SPX Calendars

Interesting comments to my initial post. FWIW, here are a few observations. In my exoerience, using the 'Greeks' to predict future movements is, like using the VIX, valueless. How's Greece doing in the world today? lol Sorry for the bad pun, but ivory tower analysis just doesn't cut it in the trading world, IMNSHO. Using SPY vs. SPX I have found more expensive, due to the higher number of contracts (and commissions on them) that are needed for the same amount of capital employed. Also, since they are American style, early exercise is always a danger. As far as the use of calendar spreads is concerned, they are a very low risk/high potential reward strategy, due to the accelerated rate of TV decay in the front option vs. the out option. And, if your spreads are well above and well below the index level at initiation, a big move in either direction earns you a good return. For instance, in the example cited by me, should the index rise to near 1310 or fall to near 1210, the nearby options would expire worthless and the combination of the out options would have a value of well over 20.00. Not bad for a net 6.50 debit in one week. BTW, the combination of all positions after one day of trading is 7.05 MTM. Time will tell.

Good trading to all.

Josh
 
Quote from optionsmaven:

Interesting comments to my initial post. FWIW, here are a few observations. In my exoerience, using the 'Greeks' to predict future movements is, like using the VIX, valueless. How's Greece doing in the world today? lol Sorry for the bad pun, but ivory tower analysis just doesn't cut it in the trading world, IMNSHO. Using SPY vs. SPX I have found more expensive, due to the higher number of contracts (and commissions on them) that are needed for the same amount of capital employed. Also, since they are American style, early exercise is always a danger. As far as the use of calendar spreads is concerned, they are a very low risk/high potential reward strategy, due to the accelerated rate of TV decay in the front option vs. the out option. And, if your spreads are well above and well below the index level at initiation, a big move in either direction earns you a good return. For instance, in the example cited by me, should the index rise to near 1310 or fall to near 1210, the nearby options would expire worthless and the combination of the out options would have a value of well over 20.00. Not bad for a net 6.50 debit in one week. BTW, the combination of all positions after one day of trading is 7.05 MTM. Time will tell.

Good trading to all.

Josh
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I see no point in exposing yourself to the risk of the short strangle when the calendar is already long theta (inside the strikes). It's hardly low risk/high reward to sell the strangle.

The "strangled" otm calendar converges to a a bear risk-reversal with time. I don't think you really want that much exposure. I suggest you model the spread a bit better.

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Hey Atticus, we're talking about a one week strategy here. An OTM strangle, as far away from the current index level as this one is, has a very low risk profile, even if it were naked. And, since the shorts are covered by the out week options at the same strikes, it's virtually risk free, Greeks to the contrary notwithstanding. As I have remarked, let it play out and then criticize the results
 
Quote from optionsmaven:

Hey Atticus, we're talking about a one week strategy here. An OTM strangle, as far away from the current index level as this one is, has a very low risk profile, even if it were naked. And, since the shorts are covered by the out week options at the same strikes, it's virtually risk free, Greeks to the contrary notwithstanding. As I have remarked, let it play out and then criticize the results
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Bullshit.
 
need some help....mar4 mar5 weekly options...

i see a weekly option for mar4 (20110325)...

i dont see an option one week further out which would be a weekly for mar5?....i thought that didnt come out until thu mar 24...

tia
 
I think I need to model the spread a bit better. I posted a short upside calendar when reducing the lot size from 10 to 1. There is nothing inherently wrong with the combo. Selling the strangle makes no sense, as you're selling garbage simply to improve the calendar debit. You can simply increase calendar size from inception to equal the strangle decay..

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Well Atticus, besides using intemperate language, you are now engaged in an ad hominem attack on my intellect. If your reference to theta wasn't about the Greeks, what, pray tell was it? Don't bother replying to this post, you obviously have nothing relevant to say.

Good trading to all,

Josh
 
Quote from optionsmaven:

due to the accelerated rate of TV decay in the front option vs. the out option. And, if your spreads are well above and well below the index level at initiation, a big move in either direction earns you a good return. For instance, in the example cited by me, should the index rise to near 1310 or fall to near 1210, the nearby options would expire worthless and the combination of the out options would have a value of well over 20.00. Not bad for a net 6.50 debit in one week. BTW, the combination of all positions after one day of trading is 7.05 MTM. Time will tell.

Good trading to all.

Josh
More...

You admonish greeks yet refer to "theoretical value" as well as arriving at a residual value for the spread.

If you looked at the greeks perhaps you would realize the reason you're implementing the strangle, and its unlimited risk, is due to the inversion of "decay" on the spread as time passes.
 
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