Trading Options: Calendar Spread (Setting Up the Calendar)
★ SUMMARY ★
Hey its Sasha Evdakov founder of Rise2learn and in this video I want share with you how to trade options no one to talk about what exactly is a calendar spread.
This is just an overview so it's not going to get in detail about calendar spreads but i just want to give you an overview insight of what a calendar spread is.
First of what you're doing with the calendar spread is you’re buying premium in one month as protection in your selling premium in the current month so that's why it's called the calendar spread so your nearest month what you're doing is you’re selling the most amount that you can and in the further away month you're buying protection.
Posted at: http://tradersfly.com/2014/03/options-strategy-calendar-spread-setting-calendar/
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+Benjulie Benjulie this of course depends on if you're putting on a position individual options at a time. If you're getting into a single contract alone than this will create a naked strategy and that's why you have an uncovered position with an undefined unlimited risk potential. So normally you want to enter spreads all at once to help offset that unlimited risk. Also you want to make sure that you're covering by the end of the month on calendar contracts because that way you don't have a single individual option contract at which point you have a Theta Decay process that starts to occur.
we are in such a low iv environments and selling credit spreads it just does not work. I have 5 credit spreads 40 days out with a delta of .25 and 9 out of them are loosing bad while the other one is not as bad but still loosing as days passes. I did went out of the money 1.5 standard deviation, with mid 30s to 40s iv rank but still I am getting crushed bad. Luckily every position I have is very small. what would you recommend in this low iv environment calendar spreads?
You can still trade credit spreads in low IV environments, but of course your earnings will be less... depends on what your risk to reward and the personal risk levels you want to take on... One can of course have various strategies depending on different market environments.
Open question.. calendars are vega positive, but volatility moves differently for different months. On a recent NDX calendar, the NDX dropped and the vol on the back month went from 16 to 17 while the front month went from 14 to 17. So.... does the TOS position vega overstate the true vega due to this? thanks in advance, all.
+Sasha Evdakov Thanks for the replay, yes.. But the front month IV moves more than the back month IV. So, on a vol crush, say after earnings, your front month IV might drop 8% while your back month vols might only drop 3%. Does this offset some of the long vega of a calendar?
awesome video, sasha is there a way to find out before hand how much can you make on your calendar spread? also is there a way to find out which calendar spread is better call calendar or put calendar?
Calendars final price will change as you have to get out of them. So in the end depends on when you get out... but they also adjust as your second month will change in value.... so there is no defined final price like an iron condor. Which one is better? will depend on your strategy - they are all just strategies.... hybrids vs truck ---> depends what you do... save gas vs moving a lot of furniture.
It is a horisontal calendar, but weekly OTM diagonal calendar spread is a monster-theta eater! Спасибо Санек, у тебя классные видео!! Надеюсь уеду в Австралию, стану богатым, будет больше общего меж нами )
Thanks for the video. Was wondering when you said if you have multiple contracts to close them out over time to catch profit, how do you do that? Do you just use to arrow key near the number and it automatically closes that contract for profit or is there another process?
+Jessica Francis There is no specific or automatic way - every trading platform is different... All I am saying is if you have 5 apples and 3 are going bad - it is best to sell the 3 apples going bad FIRST to get some money and then the others you can sell later... as you have more time to find buyers.
Good video. If volatility increase positively impacts on a long calendar and volatility increases usually when a stock goes down, I would probably do the opposite as the video suggests. That is to position the calendar a little bit positively so the loss in delta can be compensated by increase in vega, and vice versa.
Great video Sasha, but I have a question: suppose your front/back months are 30/60 days, and after 20 days from initiating the trade (a Call Calendar), the stock trades above your strike price, but below your upper breakeven point. Now you have an unrealized profit from time decay, but what happens if you get assigned on your short Call since it's ITM now? How do you profit from this situation?...... Thx
+warever37 Your protection from the further out (60 days would kick in) Typically you wont be assigned if you get out and the VALUE of your option is above .05 or .10 cents... this is because remember the other side has purchased it and can exercise that contract at any time... Why wouldn't they hold on to it a few more days in case that stock powers higher by accident or by earnings... To avoid the assignment typically I get out early in the expiration week or earlier... I have been assigned before on a few spreads, but then the other side automatically kicks in (or you call it in) and it will be adjusted with your broker. This is why you get the other side of the trade for that protection.
nice video. sasha why not make this education free. About indepth video's I am in the middle of building a website that will change the game.. entering criteria, adjustments to all spreads, butterflies, broken wing butterflies how to lock in profits all for free..... when to buy call or put calendar spreads, first check the value of jelly roll. just give me a month people. you will get 1000's of dollars worth of education at a cost of ZERO. and I will double the offer with my everyday trading absolutely free of charge. why?. cause I am making tons of money actually trading, not teaching. keep up the good work sasha. cheers
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