income calendar spread first trade

Discussion in 'Options' started by JTSheahan, Nov 28, 2009.

  1. JTSheahan


    Fellow traders, first time post and hoping not to get "flamed" right out of the box. I would like to ask (humbly) for some imput from the experienced calendar and diagonal traders out there of my impressions of my first simple calendar,still an open trade. This is a bit of an educational trade, and I am learning from it. My first realization is that the "tent" i.e the price range of underlying breakeven to B/e at expiration of a single long position is only a fraction of a 30 day STD. Deviation, leading me to realize that 2/3rds of the time at least one adjustment would be required, usually transitioning to a double calendar of some type. Is it the common experience that the majority of times an income (theta capture) calendar requires adjustments? My next realization is the importance of I.V., that it be very near historic low I.V. in back month , in proper skew to front I.V., as even a balanced decline in front/back I.V. changes P. into L. I am becoming aware that sucessful horizontal time spreading is an art, and would appreciate any feedback or tips on good resources. Thanks and good trading to all. James ,from Marin Ca.:cool:
  2. I never do calendar spreads because they have too narrow a range of success.
    e.g. take WMT at 54.63:^DJI

    sell Dec 55 call and buy Jan 55 call
    Sell Dec 55 put and buy Jan 55 put

    Net debit = $114. Max win is 98.87, unchangd win is 63.11.
    Breakeven points @ 53.83 and 56.24. A net range of 2.41.

    Random variable probability that WMT will be in that range on expiration is around 40%.That's a Losing trade. With even win/loss amounts you need better than 50% probability to make a winning trade.

    Most of the calendar spreads I have looked at are losing trades because of the narrow win range. I stopped looking. Waste of time.

  3. "Calendar spreads" to me would be bear spreading crude oil, i.e. short jan.; long feb., which can be charted like anything else.


    If you're on here for advice here's some: Pay attention to the chart.
  4. One thing you didn't mention is the IV of the legs of your calendar. Calendar spreads are vega sensitive, so if IV collapses, you lose. Look at the IV chart for the options and see if they're historically low or high

    Also, the relative IV's of the legs can give you an edge. The old adage "buy low sell high" applies to IV as well; buy low IV and sell high IV. Make sure you're not buying the relatively higher IV leg; if you are then you're at a disadvantage right away.
  5. yeah....last year i made more money that way,than i have ever imagined....
    but this year was not really good......
    still with deep callendars this fall i lost very little,compared with any other trade strategy on my wrong bet on falling oil....

    there is one interesting thing though....if oil start to fall,usually the contango widens,so its much better to use deep ITM call calendars,than deep OTM put cldrs.
  6. Perhaps you should look more thoroughly.