calendar straddles...?

Discussion in 'Options' started by propslave, Jul 2, 2009.

  1. Do any of you ever put on a calendar straddle... ie short the front-end put and call and then buy the back-end put and call? What are the risks here?
  2. About double the risks of a single put or single call calendar...
  3. Yeah, you're simply doubling-up on a single call or put calendar. The arbitrage-constraint is the roll-market.

  4. Biggest risks are

    a) gigantic stock move and

    b) significant decrease in IV

  5. Same risk as any time spread
  6. spindr0


    Yeh, I do them for earnings situations where there's inflated IV and horizontal skew. They tend to be ratioed in order to distribute the P&L graph more to my liking.

    Tho it was a reverse calendar spread or sorts, you can get an idea of some possibilities by taking a look at bebpasco's chain:
  7. An atm long/short calendar will perform inside/outside the atm straddle range, or approx a sigma, provided there is a flat term-structure of volatility and no stock-specific vol anomalies. Of course, most traders treat them as binary event wagers.

    ATM long calendars are generally a poor-proposition in a tight range as you're winning on gamma but losing on vega. You've bought the position at best-case, so I'd rather trade them directionally, as hedges, or neutral with some term-structure edge.