What are Calendar Spread Strategies? | Options Trading Concepts
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- Опубликовано: 28 сен 2024
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Question:
Assuming the IV stay the same and everything else; I always can make money cause theta decay in the shorter time call is higher than in the longer time call?
Thanks for the content
But assuming that Spot stays the same doesn't make sense. It rarely happens
@@padmach5332 it can happen on certain ETFs like TLT.
Are there any circumstances under which one can lose more money in a calendar spread over the initial outlay + charges if one were to close the trade before the first near expiry date?
Great explanation, mate. Very helpful vid!
Sorry, can't follow this. Charts are NOT annotated clearly. Did not show profit/loss as price changes clearly.
Put 'Calendar Nifty August || 3% Profit in just 2 days - ruclips.net/video/l_05gtMi0rU/видео.html
If you're saying the volatility expansion is rare/fluke, can you elaborate what situations you're going to be trying for when doing this? Are you hoping that the price is going to go up, but after the short call's date? For example, if I suspect that marketmakers are suppressing stock price for the next 2 days so that the $3 calls that everybody flocked to after a bullish article was written expire worthless, but I feel after that date, 2 months later the price is going to continue to climb.. would this be a good spread to be trading?
Volatility expansion can happen when the stock price is moving up or down. The premise is that volatility tends to revert to its mean. Use IV rank to help gauge where the current IV stands in respect to the last 52 weeks.
What happened if the short Calendar Spread is in the money when it Expires and you still have the Long Spread? I see there is a loss of Profit here. Would it be a good choice to buy the Short Spread and hold the Long one? Either action you take you will incur a Loss when the Short Spread Expires because the Short one is in the Money. What is the best route to take in this scenario? Thank you.
Both options are on the same strike, so you'd be left with no position - the long shares would be offset by the short shares when each option turns to stock - leaning directional is totally up to you and your assumption.
First chance you get cut your liabilities and buy back the short option. You eliminate risk and increase upside potential.
How does this strategy work if the strike of the calendar is chosen to anticipate where the closest option will expire? In otherwords, if I expect the underlying to drop/increase by one or two strikes on the underlying option chain, why not write the vertical at that strike?
Put 'Calendar Nifty August || 3% Profit in just 2 days - ruclips.net/video/l_05gtMi0rU/видео.html
Is it really possible for the price of the underlying to stay the same during a volatility expansion? Sounds counter intuitive to me.
It is rare, but definitely possible and does happen - A good example is a binary announcement being placed in that cycle, or an earnings date being moved into a cycle - that would boost IV and extrinsic value, without a stock price movement per-se
Thanks for this video mike
Opening song... So Good!
I wonder if the greater time decay that comes with high volatility can ever justify a high volatility entry.
Thank you so much!
hi, can i keep the second leg of a calendar long call spread, if first(short one) is expiring worthless?? Thank you!
Yes you can! Or you can sell another option to continue to reduce basis, whatever you prefer!
tastytrade I'm sorry this maybe no brainer to you but i have question because I'm having hard time understanding correctly:
If i sell a call that is in the money wouldn't i be obliged to buy it if assigned? Meanwhile i have the long let waiting then what? I'd have to use it as collateral?
Are these ATM options?
Typically with calendar spreads we go ATM or slightly OTM.
Why debit? Is there no benefit to a Calendar credit spread i.e Buy the near month and Sell the later month same strike?
That would just be a reverse calendar spread, where you want IV to contract, since the short further dated strike will have a higher vega sensitivity than the long near term option on the same strike.
This is a "basic strategy"? Too much confusing info to even consider this.
I would like to do this with CMG and APPL..see how it goes
Well?
How did it go?
You should label your axis when you draw a graph.
If I expect the stock price to go down, why would I want a Call Calendar Spread when the debit is paid for the long option? Vice versa for the Put Calendar Spread.
If we think the stock is going down and we still want to route a calendar, we would use a put calendar slightly OTM. If we think the stock is going up, we would use a call calendar slightly OTM.
At the same time, if we have a directional assumption, a calendar isn't really the best strategy as it has a very tight profit window, and TOO much movement is bad for the strategy.
scerva I agree with you. Mike mentioned it other way round. Indeed go for call calendar if you expect a uptick.
Can you do cal spreads to benefit from Volatility crush during ER? I see the weeks closest to ER has pretty high IV compared to ones that are farther away. This should mean the short leg loses substantially more value than the long leg day after ER.
Calendar spreads are actually a positive vega trade since your long option is more sensitive to changes in IV than the short, even if the short does drop in premium by a larger percentage, it is still a net positive vega trade so it's not something we do for earnings.
At the same time, a calendar spread requires the stock price to stay really close to the short strikes, which tends to be the opposite of what happens when earnings are released and the stock moves up or down. It's rare for a stock to have a complete non-movement after an earnings announcement, but certainly can happen.
tastytrade great answer, thanks a lot for taking the time to respond. I did note down IVs and pricing of Adobe this week for their ER, and I noticed that despite the huge IV drop, the Vega still won over. Not something you want to use during an ER. :)
@@VigneshDhakshinamoorthy There are always two sides to a trade. So if you noticed above, wouldn't an opposite trade, buying short term and selling long term work?
@@VigneshDhakshinamoorthy Hi, what is 'ER'? Thank you!
@@brads215 Earnings Report
I like the flexibility a calendar trade offers. Most of the options I trade have weeklies, and as the first weekly expires, if price hasn't moved, I can sell the next weekly to further reduce my basis on the more distant. If it has moved in the direction I expected, (assume bullish) I can buy back the short nearby and roll up, still reducing the basis on the more distant long and building a profit into the now diagonal spread. If you have enough weeks to run, at some point the basis in the more distant long option goes to zero, or you may even get paid to hold it.
This strategy is still working for you?
@@RicardoHernandez-zr1pw it definitely depends on the market trading environment but I couldn't agree more I love this trade the simplicity of it and the flexibility of it.
This sounds promising...thank you for sharing...
how far out is ur short and long usually? and you prefer put calendar or call calendar? great explanation btw.
Yearly assignment risk (on the short call) is not explained.
Assignment is rare and doesn't change the risk profile of the trade in terms of max loss - only the buying power. It actually increases potential profit as now you'd have short shares with a static delta and if the stock dropped, the long call would lose value but you'd have static short delta that would move in your favor with the stock price dropping.
@@tastyliveshowEarly assignment, generally occurs for a call only when the stock goes ex-dividend. Should early exercise occur, using the the longer-term option to cover the assignment would require establishing a short stock position for one business day. So you would have to have enough purchasing power in your account. That part should be explained as well
I have a LEAP 17.5 call on CCL. Can I use this strategy?
Put 'Calendar Nifty August || 3% Profit in just 2 days - ruclips.net/video/l_05gtMi0rU/видео.html
@tastytrade but dont we benefit from decrease in IV since the front month will likely decrease in IV faster than the back month? So if the ER crushes IV and the stock stays the same it would benefit a calendar spread?
Normally when the IV is crushed price moves up , it doesn't remain the same
The change in dollar value of the far out long option will be greater when the IV changes to the upside or the downside.
You can buy a leap and sell weeklies to profit from the theta decay with all things being equal.
Do you have a research on this? I figured that too but haven't been able to calculate p/l yet, im lazy😅
@@666777kenny yes this is my current strategy. Make sure your short weekly has a very low chance of becoming in the money, do not be greedy. As of right now I sell short calls at 10 delta every 2 weeks. I think I get $100 every 2 weeks per call and I have 3 calls going at once so not bad
do we cloase the calendar spread or let it expired?
Close it before expiration in most cases unless price is flat around short strike. You're looking to capture some cash flow from theta decay or a quick spike in Implied volatility (typical making the far dated option worth more).
Good information mike
So this strategy is for when you want to hold the contract passes expiration?
Not really - we tend to get in and out pretty quickly since our profit range is narrow - we shoot for 10-20% return on debit paid.
@tastytrade can we enter and exit in intraday with profit?
Hey are you the guy from Project Option? You totallt look like him. IE no glasses and bald head?
That is my little brother!
Mike B. is more handsome in our opinion. And during this stay-home pandemic period, he is looking just as good as one of Market Mindset hosts.
Great
Tasty Trade is litetally the freaking bizniss.. as a long time trader i love these.. mad props
Think I’ll stick w vertical spreads
PMCC 🌝
Mike, you are excellent at explaining strategies. Thank you always :)
Great video, at 12:28 you state that if the stock price drops you would rather have a call calendar spread is that not the opposite and vice versa for the put side?
lukas baral optimally you don't want the stock price to change much, you make money in this play by IV going up. Since you sell a call or put with the earlier expiration you want this to expire out of the money so you collect max profit. His point is that if you think the short term price may drift up then sell the put so you don't end up selling an in the money option. Again, the key with calendar spread is for the price to stay flat, but for some event like a pending earnings call to drive up IV which increases the long options value
visuals are too complicated
Mike, you really understand the material. You are NOT just regurgitating it!!!!
Mike, you are going too fast, it's hard for me to keep up. Surely it's an advanced class.