"Vacation Spreads"

[mushinseeker]

Tom. I tried it on the spx (where I have no experience whatsoever) and I think I know why I can't visualize your pnl profile. I was thinking of selling a higher strike in the back month after I buy back the short front month effectively turning an OTM call calendar into a long call vertical in the back month. I assume you are talking about turning a calendar into a short call vertical after buying back the short.. since you said "then sold the strike $5 closer to the market for 40¢"
So in my example w/ SPX at 2440, I would put on a 2475 calendar for $55 debit, wait for a pop to 2460, buy back the short 2475 suffering a~70cent loss , sell the back month 2480 for $1.75 .. the net net numbers mean that I bought the 2475/2480 vertical for a slight credit after adding in the 70 cent loss , giving me a 2475/2480 long call vertical in back month for slight credit ie no risk other than the initial $55 debit I took for the calendar. Am I still off?

 

[beerntrading]

Tom. I tried it on the spx (where I have no experience whatsoever) and I think I know why I can't visualize your pnl profile. I was thinking of selling a higher strike in the back month after I buy back the short front month effectively turning an OTM call calendar into a long call vertical in the back month. I assume you are talking about turning a calendar into a short call vertical after buying back the short.. since you said "then sold the strike $5 closer to the market for 40¢"
So in my example w/ SPX at 2440, I would put on a 2475 calendar for $55 debit, wait for a pop to 2460, buy back the short 2475 suffering a~70cent loss , sell the back month 2480 for $1.75 .. the net net numbers mean that I bought the 2475/2480 vertical for a slight credit after adding in the 70 cent loss , giving me a 2475/2480 long call vertical in back month for slight credit ie no risk other than the initial $55 debit I took for the calendar. Am I still off?

Selling premium, so always short the close strike (whether price or time)...I think, a few beers in right now...

Also, thanks for bringing this one back on topic!

 

[beerntrading]

What strikes? Anywhere they'll take me for a cheap-ass debit. If you shop from far OTM to deep ITM, the actual cost for the horizontal debit really doesn't change that much -- not the 10x-100x you see with a vertical.

Visualization? It's too loopy for me -- too reactive to time and vol. I just want to know "relative to" the long (owned) expiry -- cuz my *real* aim is just to enter that vertical long *anchor* a bit early, and essentially use it twice. If it *happens* to get sweet earlier, all the better, but I'm an option *seller* -- I'm just setting up a vertical with a little added usage ahead of time. "Recycling" as it were. Diagonals, really, do the same thing, but if you moved them off of your long strike, you'd have to mind them while you're gone. Ewwwww.

Naked shorts: no -- I'm not big on that, either, but if you intended to buy, then entering via selling puts is a *damn* sweet way to do it. I mean, they're *paying* you to buy it anyway! Jeeez! Who thought of this stuff? Sweee-eeet.

Do you trade the calendars exclusively on the SPX / SPY? I did some digging around on securities today, and the strategy looked dependant on good order fills. Do you just place a lot of orders and take fills as they come until you hit your target exposure? It looks ok on the most liquid options, but shallow market for anything that volatility comes into play.

 

[tommcginnis]

mushinseeker, beerntradin',
Yeah -- fills for me are everything.
I have happily traded calendars in equities in years past, but it always seemed pretty easy and sensible, and I don't recall ever losing money. (Could've been stupid luck, or bad memory...) but in Indexes/Futures, I have never seen a calendar that I thought was worth taking. The thing that changed all that was this ThirdThursday/Friday deal -- which I realize can be replicated with any of the Mon/Wed/Fri expiries, but there is so much volume on the third Thursday that I'd thought that was the best place to start.

Anyhow, I put a spreadsheet together to run differences between expiries by strike, and so to tease out where, in the coming weeks/expiries, are the best bargains, the largest vol or price increases, etc. One of the outcomes was screaming "Calendar, you fool!" {anybody see Gandalf on that one? No? }

So... I hate feeling "trapped" in illiquid markets -- so my lesson was, "If you wish to exit, place the long where it will get the most traffic (i.e., big, round-number strikes -- multiples of 25s, or at least of 10s), and if your spread gets hit, you're out, and if your short gets hit, you're out at least a bit easier, because your long is at a round number.

That reduces (but does not eliminate) the bad-fill possibilities. Put the order on, and let it percolate all day if necessary. (Or more! Yesterday, stuff that I'd wanted to fill for 10¢-20¢ was going for 70¢. If I'd gotten *filled* at 20¢, I would've been selling; but not, I am *not* buying at that rate. I'll buy at the price that, a day or two before the expiry of the later/long position, I don't feel foolish: 5¢ -- 10¢ -- maybe 20-25¢. That's about it.

(Did I mention I don't care for *buying* a wasting asset? Did I mention that? No? My bad.)

 

[beerntrading]

mushinseeker, beerntradin',
Yeah -- fills for me are everything.
I have happily traded calendars in equities in years past, but it always seemed pretty easy and sensible, and I don't recall ever losing money. (Could've been stupid luck, or bad memory...) but in Indexes/Futures, I have never seen a calendar that I thought was worth taking. The thing that changed all that was this ThirdThursday/Friday deal -- which I realize can be replicated with any of the Mon/Wed/Fri expiries, but there is so much volume on the third Thursday that I'd thought that was the best place to start.

Anyhow, I put a spreadsheet together to run differences between expiries by strike, and so to tease out where, in the coming weeks/expiries, are the best bargains, the largest vol or price increases, etc. One of the outcomes was screaming "Calendar, you fool!" {anybody see Gandalf on that one? No? }

So... I hate feeling "trapped" in illiquid markets -- so my lesson was, "If you wish to exit, place the long where it will get the most traffic (i.e., big, round-number strikes -- multiples of 25s, or at least of 10s), and if your spread gets hit, you're out, and if your short gets hit, you're out at least a bit easier, because your long is at a round number.

That reduces (but does not eliminate) the bad-fill possibilities. Put the order on, and let it percolate all day if necessary. (Or more! Yesterday, stuff that I'd wanted to fill for 10¢-20¢ was going for 70¢. If I'd gotten *filled* at 20¢, I would've been selling; but not, I am *not* buying at that rate. I'll buy at the price that, a day or two before the expiry of the later/long position, I don't feel foolish: 5¢ -- 10¢ -- maybe 20-25¢. That's about it.

(Did I mention I don't care for *buying* a wasting asset? Did I mention that? No? My bad.)

Well, I'm on the same page at least. I'm slowly getting to where I can visualize this in my mind. Not sure I'll be confident enough with it in time for this vacation, but I'll definitely keep it on my radar (maybe I'll try a few small positions just to dip my toes in the water).

I typically shy away from long options myself, but I might leave a few with some conditional limit orders while I'm gone. Probably some debit spreads to with the same. Mostly, I just feel more comfortable with it.

Hoping we get back up towards 2450 for opening positions. Another retreat and recovery would really strengthen my position that S/R is 2450, and a break one way or another is likely (also seeing this in a lot of my radar stocks--particularly consumer defensive and tech).