Lately , I took a new (for me) calendar positions : Long 30d , 1 contract Short 60d , 2 Long 90d , 1 All the same strike. Those trades was event driven with expectation of vols collapse and I made nice profit , but now I wonder if anyone here ever enter something similar for neutral/event free environment ? Looks like one can establish a Theta&Vega neutral position with positive Gamma . Thoughts ?
You might be interested in Hoadley's Excel add-in: Automatic Position Hedging (fifth paragraph down the page). You can review its demo video. Using multiple option and underlying positions you can combine them to neutralize 1, 2, 3 greeks, but don't forget that any such position is neutral only for a moment. As its inputs change (price, iv, time, dividend, rate) neutrality goes away and you have to continuously readjust, being drained by slippage, commissions and adverse movements. You have to have a clear plan how to do it, for any changes that might happen. I didn't see a hedge like the one you're looking for, but you can write down the equations and solve them for whatever you want.
I think cottle calls your position a calendarized butterfly. I've never done it, but eager to see how it works out for you.
it's works very good for me , but again , I use it for one day only and betting on accuracy of prediction of variables (mostly IV) before and after event. I wonder if it will work for a longer duration of time , like to expiration of the first leg (30d). If someone has experience with this position , maybe they can share pros and cons (possible future adjustments , staff like that). BTW , Calendar Fly make sense (that what I thought too)
The problem (as I see it) if you want to hold it longer... say the 1st leg exp then there is much time for your prediction of variables to be wrong. You might throw it on a paper trade to see. I like it though...it may take some adjustments so there are a lot of unknowns.