weekly time spreads
- Thread starter faust
- Start date
Looks like you are doing double calendar spreads. I believe the professional option traders will tell you that is inefficient. Calendar debit spreads benefit from increasing volatility which is usually seen with declining equity prices. As such, a directional consideration usually weighs significantly. I say usually because during instances of significant term structure inversion, declining volatility can actually benefit a calendar spread. For example, I had a calendar spread that had IV significantly higher in the front expiration compared to the back expiration and was hit by a large gap up, going further out of the money, and lowering overall IV. Of course front IV declined more than back IV. The value of that position doubled, which I gladly took.
I will model an increase as well as a decrease of IV of 25% and compare payoffs for a idea of reward to risk(R/R) for one to two week calendar spreads according to risk management criteria and trade target. R/R*POP (probability of profit) can roughly equal expectation, depending on payoff structure. Optionsprofitcalculator.com gives payoff calculations for each day until expiration according to IV outlook in a spreadsheet format, among others.
I will model an increase as well as a decrease of IV of 25% and compare payoffs for a idea of reward to risk(R/R) for one to two week calendar spreads according to risk management criteria and trade target. R/R*POP (probability of profit) can roughly equal expectation, depending on payoff structure. Optionsprofitcalculator.com gives payoff calculations for each day until expiration according to IV outlook in a spreadsheet format, among others.
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