Even though there's little delta/gamma risk in holding this trade into next week, there isn't much additional profit either—and we do have volatility risk. We're closing our position for a 15.2%...
Tuesday, February 10, 2009
We’ve gotten a couple e-mails from members wanting to know what we would have done if yesterday’s adjustment order had gone through, in light of the huge sell-off after the Treasury Secretary’s bank-bailout speech this morning. As a reminder, we entered the following order yesterday, which expired without getting filled: Day limit order Sell to close 2 SPY Mar 71 puts Buy to open 2 SPY Mar 76 puts Buy to close 2 SPY Feb 77 puts
Thursday, February 5, 2009
A steady decline in implied volatility through the first week of the new year weighed on our positive-vega calendar positions, narrowing their profitability ranges and pushing down their unrealized gain/loss. Although the January cycle saw a drop in intermediate-term price volatility, the period was dotted with short-term whipsaws, which our vega losses made more difficult to tolerate without adjusting. With the combination of dwindling IV and fits of short-term volatility working against us, the average loss for our two trades…
Tuesday, January 13, 2009
With the VIX on the rise again but meeting resistance around 45, we’re planning to publish at least one double-diagonal trade (see Part I, Calendar-Condor Fusion) for February expiration. That way we’ll have a chance to get some positive vega into our portfolio, but we won’t be taking on as much volatility risk as we did in the January cycle. But before we dive right in, it’s important to be aware of some trade-offs and caveats related to double-diagonals:…
Tuesday, January 13, 2009
This month we learned the hard way just how damaging a sharp drop in implied volatility—a.k.a. “vol crush”—can be to calendar spreads, and that straying from our short-list of relatively well-behaved stocks and ETFs is a risky way of trying to avoid it. Back in December, we tried another approach for lowering volatility risk, using a diagonal spread instead of a straight horizontal calendar, and we found that starting out close to delta-neutral with a small strike spread provided little…
Wednesday, November 26, 2008
When we talk about a “calendar spread” here at Calendar Options, we always mean a horizontal spread (both legs at the same strike). But more than a few calendar traders will sell the near-month option a strike higher or lower, to give the position a bullish or bearish bias, and still call it a calendar spread. We prefer to make a strict distinction between these “diagonal” spreads and “calendar” (horizontal) spreads, and our core strategy is based exclusively on…
Jared Woodard is a registered commodity trading advisor who specializes in trading volatility as an asset class. With over a decade of experience trading options, futures ... Read More
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Friday, February 13, 2009
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