Circus calendars strategy

Discussion in 'Options' started by akivak, Feb 5, 2010.

  1. akivak

    akivak

    I found this webinar on CBOE website - http://accordent.powerstream.net/008/00124/presentations/SL20080515/index.htm

    It’s called Circus calendars strategy.

    Description of the strategy:

    Initial position:
    - 2x ATM Call Calendar Spreads
    - 1x OTM Call Calendar Spread, located 1/2 of std deviation or more
    - 1x OTM Put Calendar Spread, located 1/2 of std deviation or more

    The risk curve looks like a circus tent, hence the name circus calendars.

    The recommendation is to open the calendars in consecutive months, because according to the webinar "Further-out distant long strikes will increase the vega risk of the position".

    Adjustments:
    - when the price hits one of the outside/wing strikes, then:
    - close the opposite side's calendar spread
    - open a new OTM calendar spread in the direction of the price move
    - adjust the multiple lot position, if needed

    According to their backesting (using SPX) this strategy returned about 53% annualized in 2006 and about 188% annualized in 2007.

    Has someone used this strategy? Does it have a real advantage to open double lots for ATM spreads? How does this strategy compare to double calendars? What would be the best underlying (SPX? RUT? NDX? OEX?).
     
  2. Madeoff

    Madeoff

    Do it! (after you have been studying for many years, and keep in mind that the guys on the floor don't pay near as much the commissions and spreads as you do)
     
  3. akivak

    akivak

    The backtesting results include trading in the mid of bid/ask and $1 per contract commissions.
     
  4. Madeoff

    Madeoff

    Debit circus calendar spread should do well as IV icreases. (DO IT!)
     
  5. mrwoody

    mrwoody

    I think that your broker would be very happy if you use this stratergy.
     
  6. akivak

    akivak

    Well, not necessarily - depends which underlying you are using. If you use NDX for example, one spread is worth around $1,500-2,000. Buying and selling one spread would be about $4-5 in commissions - that's less than 0.5%. Using SPY is completely different story - it can easily be 4-6%.
     
  7. Carl K

    Carl K

    Post the trade to the "Risk Doctor" web site.
    "Calendar Configurations"
    http://www.riskillustrated.com/index.php/board,29.0.html

    Charles will give a good evaluation of the Risk.

    Carl
     
  8. spindr0

    spindr0

     
  9. That position has TONS of vega so watch out for prolonged up move as well as corporate events that will impact the vol curve intermonth. Also watch out for gap moves that will wipe out the debit on all the 3 cdrs.