Calendars and double calendars

Discussion in 'Options' started by jimmyjazz, Oct 10, 2014.

  1. jimmyjazz

    jimmyjazz

    I'd like to hear some feedback from folks who trade calendars and double calendars (or double diagonals). I'm specifically interested in whether or not you find it necessary to hedge vega or delta, and what adjustments you might make. Also, what kind of time frames are you looking at?

    I put on a double calendar last week on AAPL (98/103) and it finished "in the money", but lost money. I haven't done a post mortem yet, but I presume this is related to the long options not being correctly modeled at inception. (I'm not suggesting there is necessarily a better way to model the longs than what I did with my options calculator, which is why I'm interested in possible hedging techniques to reduce the impact of volatility and movement of the underlying.)
     
    #1     Oct 10, 2014
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  2. sonoma

    sonoma

    In general, if you're assumption is limited movement in the underlying, then a single calendar at the relevant strike is a better trade than trying to bracket that movement with 2 time spreads. Long deferred month options will behave in ways that add uncertainty because of changes in vol in the deferred month. A fly in the near month eliminates that risk and accomplishes what I assume you were trying to achieve.
     
    #2     Oct 11, 2014
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  3. jimmyjazz

    jimmyjazz

    Thank you, sonoma. I see all kinds of testimonials about time spreads, but in my experience they just don't tend to play out as predicted. I can't afford that level of uncertainty.
     
    #3     Oct 12, 2014
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  4. jimmyjazz

    jimmyjazz

    Well, it happened again. I put on a double calender on UNG (@ $20.60) a week ago, using the $20 put calendar and $21 call calendar, front expiry today.

    This morning, UNG drifted down to $20, so I legged my way out of the trade. Note that this was within 4 hours of expiry, and the underlying was right at the point where profit should have been MAXIMUM.

    The trade lost money.

    Not a lot of money, $150 or so, but my expected P/L at expiry was maybe twice that much (and positive) when I put the trade on. Implied volatility went up over the course of the trade, too. What the hell? Where is the exact sticking point on these things? Should I be trading ITM calendars instead of OTM? Any other advice (besides "don't trade calendars", which seems pretty f'n obvious at this point)?
     
    #4     Oct 17, 2014
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