Yeah, except you are short gamma in the pre-news period and it can certainly get pretty painful (a whisper-number can totally destroy you). To add insult to the injury, changes are that you have already paid extra premium for post-announcement vol.
Atticus has done it I believe... SLE is absolutely right...calendar spreads should NEVER be adjusted...or pretty much any risk defined trade...hey you have already defined your risk!!! Pretty much what I learned thru sorry experience....thats when I usually lost more than the original debt. Straight out puts/calls/straddle's and strangles are the only ones you really can play with to either lock in gains or limit losses.
Well, I would "adjust" that statement by saying that if you are truly trading term structure (delta-hedging) then it's a different trade. Assuming you are doing it root-time Vega flat, you are trading gamma against forward volatility. If you are trading it gamma-flat, you are taking a position in the level of forward volatility. PS. I am not sure what is so cool about trading OTM calendars - you don't get hosed frequently, but when you do, you get hosed big.
Calendars are tough - I wouldn't advise them unless you're really experienced at trading options and have good discipline. Stick to low % of your assets in them ... They look good on paper but you NEED to know what you're going to do or not do if a position goes against you, and reading some guys book or blog about calendars is not going to help you when you're in a tough spot. Calendars are probably one of the toughest spreads to play. I prefer debit spreads and would suggest those over calendars.
Interesting info so far... Here is what my summary is: Calendars look like butterflies but there is a key difference. Calendars are vega positive while 'flies are vega negative. Hence they should be used in the opposite situation (low IV - go with a calendar, high IV - go with a 'fly). R/R is better with 'flies though. Adjustments should be avoided and I totally agree with that. Adjustments may make sense only in the case of multi-month calendar (e.g. SEP/NOV) when a short leg is rolled to the next month as it gets close to the expiration. It is better to be a directional then neutral - I agree. Moreover, I think that the preferred direction should be down since in that case a calendar spread is set to gain from directional movement and IV increase. No individual stocks should be used as they present too much of a gap risk - that was my original statement - although someone mentioned individual stocks in their experiences. My only concern now is the reasonable possible loss and exit rules. If we're talking about strictly ETFs or indexes, what would be "must close" loss in a position and how probable is it? I guess I need to find some stats on that and do back testing. Same goes for profits. If a spread gains 10%-15% in 2-3 days, close it or wait for more?
Time flies are dumb unless you're trading switch-risk (contango/backwardation curves) in commodities. The exception would be the vol-ramp into earnings on something like GOOG or PCLN. Sell deep ITM calls in front month for deltas (zero-decay); buy 2x ATMs in reporting month; buy deep OTM in next reporting month. Just one example and nearly a pure vol-risk.
All traders have their own opinions and thats great. But why is it that these 'adjustments' or additional trades get such a bad rap? You want to sit and hold onto a calender spread? This is one of the riskiest bets an option trader can make and thats why the reward is substantial if you are right. I made it clear that this is a trade in which you must think outside the standard set up. I don't have all the answers but I would take my bet over anything I have read hear so far. Additional trades or 'adjustments' can also mean selling or buying options to make the greeks line up and keep you out of trouble. I can't trade for you, but please try to think a little about what a calendar/time spread actually is. If you are thinking standard, you have already lost.
Selling? Boy, let me tell you, I've got nothing to sell. But when I see what I've seen so far on this site, makes me wonder who the hell actually trades here? You? What kind of money do you actually make? I joined here to help or set straight guys like you, you know, the ones that think they know it all. You don't even know how a calendar/time spread makes money. I have expressed that I don't trade these but I do have a brain. You have how many posts on absolutely nothing? You really don't impress me, I've seen your garbage. Further, posts like yours, how productive do you think they are? And how old are you? 12?