FOTM Calendar Spread

Discussion in 'Options' started by valkyrie, Jul 22, 2009.

  1. valkyrie


    I'd like to get a reality check.

    HSY trading at $39

    With papertrading on TOS, both the Aug/Nov put spread $20 and the call spread $50 could be bought at $.05 on 7/22

    Margin =0, total investment less than $100 (fees, bid/ask) for 10 contracts each.

    If Volatility doesn't change, you can make $1750 if the underlying either drops 50% or gains 20%.

    With the probabilities from TOS:
    80% of the time you'll be out $100=$80.
    20% of the time you'll hit the calendar $850 (avg win) =$170.

    Thus, you'd make $90 per trade. Nice return for $100 investment. Losing $100 about 8 times out of 10 should be ok even for small accounts.

    Does that mean there'd be an edge in the long run or is it just papertrading baloney and you can't get these spreads that cheap?
  2. prakashsi


    what r u gonna do if the IV drops like a fly...and you forgot to account for bid/ask and fees

  3. To know if you can really buy those spreads for 5 cents, take a look at the bid/ask for each of the options.

    1) You can probably get the 25 Put spread for 5 cents, so buying the 20 would be foolish.

    2) This stock is very non-volatile, so your chances of winning are small. But the payoff is decent - especially on the puts. Why?

    If the stock drops that much, IV should rise, giving you a more profitable trade.

    My guess is that you can get these spreads at your price. In the case of the Nov 20 put - it's offered at 5 cents, so there is no need to try to sell the Aug. But I'd still recommend going after the 25 strike spread.

  4. the aug 20p/50c strangle is zero bid so selling it against nov yields nothing. the nov 20p/50c strangle looks to be 0 bid .15 ask, total open interest 27 (calls) and 30 (puts). if you want that action, just buy the nov strangle alone. vol crush won't hurt him as half nothing is still nothing.
  5. Odds are that the Aug options have no bid and that the legs of the Nov strangle have an ask of 5 cts each. Assuming that you could sell the Aug strikes for zero (ROFL), why mess with a 10 ct double calendar when you can have the strangle for 10 cts? - assuming that the paper trading quotes are legit. Check them in real time. LOL, they might be a dime each because ET speculators are bidding them up (g) !!!

    This is lottery ticket stuff. You've got a better chance of getting hit by lightning and that's before you put your aluminum foil hat on.