Condor Options

A lot of “ancient Chinese wisdom” was being thrown about as the credit crunch mushroomed into a global economic crisis. Last month we couldn’t escape being told by ever credulous journalists that the Chinese word for “crisis” was a combination of words that meant “danger” and “opportunity”. While this, like much of the fact-challenged media’s so-called reporting, turns out to be questionable, it’s true that in crisis there is opportunity.

As we launch our calendar-spread trading newsletter and blog tonight, we can’t help thinking of another bit of supposed ancient Chinese wisdom (allegedly exported by a British diplomat)—the saying/curse, “May you live in interesting times.” It takes but a glance at a historical chart of the S&P 500 index to confirm that it’s been more than 30 years since times have been quite so “interesting” for investors and traders, and historically high volatility presents us with both a challenge and an opportunity.

The challenge is to manage our risk trading calendar spreads for income (as opposed to speculation) in an unusually volatile environment. Ideally, we want to buy low volatility to increase the odds that our long-dated options will hold their value as our short contracts decay into expiration. Today there’s no such thing as low volatility, so we’ll need to use other techniques for managing volatility risk—like looking for front-month volatility skew, buying earnings months, trading the new Bizzarro World volatility range, and skewing trades to offset vega losses with delta gains. And these challenges are precisely where the opportunity lies.

The fact is, there’s never been a better time to learn to be a good calendar trader. It won’t be easy to achieve our 10% per-trade average profit goal in the short-run, but singlemindedly chasing profits isn’t what we’re about. Our mission, first and foremost, is to teach you how we trade—and you can be sure that we’re going to share every idea we’ve got for generating income from calendar spreads in a challenging environment.