coach, you have summed up what has happened to many here that we have witnessed (on other threads of course). a natural repeating theme is guys see a play that looks good on the surface; jumps on it and ignores consciously or unconsciously the downside possibilities. many wipeouts just this year. now to my twist ; in the opinion of any truly experienced and profitable option traders, does anyone see a way to make money with a similar strategy of the thread subject?
yes after all this posting I guess it didn't help me at all. Trade number 2 (Calendar Spread) I sell the ES (expire on 14 June) 1560 Put for 48.50 points I buy the ES (expire on 29 June) 1560 Put for 41.50 points Net credit receive =+7.00 no matter where it end I make 7 points. I will square off everything on the 14th of June. If ES by then is at 1560 or above 1560 then no issue sell leg worthless 0 (near month) and my sell leg no intrinsic value but still has time value so if I square off everything I will make 7 points + whatever time value I square off for my sell leg. If ES is below 1560, my sell leg will have intrinsic value + 0 time value. My sell leg will have intrinsic value + time value. Again I will still make. So what am I missing here??
You were given the answer already, the JUNE end of the month will not trade off of the same future value as the JUNE 3rd friday of the month. The June end of the month trades off of the SEPT contract. You need a way to model the two futures position in the spread so you can see the actual risk between the two. I will see if I can put it on an OptionVue screen and show you the risk reward profile, that will help you a lot. DOMESTIC: if i put the profile graph up i think you can see the best way to profit from this type of position. Basically it has a bullish bias like any deep ITM put calendar spread.
My favorites are noobs buying options that are either adjusted or there's a pending special dividend. Can't miss, free money deals turn them into the meal. LOL...
Reverse calendars (RC's) can be very interesting near expiration when you're dealing with earnings announcements. You're making a short term bet that you're going to catch a collapse in volatility or a substantial move in the underlying away from the strike. Or perhaps a blend of both in which case the magnitude of either can be less. IOW, you want to nab more time premium loss in the further month than the near month. And obviously, if there's little to no stock price move, you have a minimal gain or a modest loss. Bloated pigs fit the bill (eg. NTRI occasionally) An interesting variation is to buy the near month, near the money straddle (or strangle) and ratio write a few extra of the same for the following month (ratioed double RC's - or whatever you wanna call em). You need a decent option model to plot the possibilities in order to select the combo details that you feel comfortable with. Lastly, you have to make a decent guess as to what the post earnings vol's will be. IVolatility will put you in the ball park but it's still a guess since a chunk of IV collapse occurs with the announcement and then add'l drift follows. Look for a thread on this here by IV Trader. He's my reverse calendar hero!
yeah, iv doesn't know it (he probably thinks i just sell premium!); but i do pay close attention to his trading thoughts. so spin, if you are looking for the vol collapse; is this type of trade put on for a credit? are you still on those yahoo boards? i haven't been there in a long time.
lol , dom , I never said that you just selling premium. I know that you know what you are doing. Your performance ( 5-10 % a month) speaks fot itself. In the last few weeks I was looking into long calendar on Index that OP mentioned here. Sell 10 30d DITM put (4-6% away from current price) Buy 10 60d DITM put All the same strike for small debit/none/small credit Ones in a while I will hit an absolute home run ( if strike pins at front month exp) , but how to escape SET and spread loses if index doesn't move or goes down ? I think that I have to go long on the spot at 9:30 on last Thursday , but I was not able to solve the ratio yet ( 950 ? 1050 ?). Same problem will re appear again at the back month SET day. I still cannot find excel SET formula from OC thread .