Broad-marked volatility continues to hover near six-month lows, and it’s reasonable to bet that it won’t go a whole lot lower in the near-term. With 39 days left until June expiration, this is a good time to open an early calendar spread.

The Thesis

At about 30%, average implied volatility for the iShares MSCI Emerging Markets ETF (EEM) is currently near the bottom of its 12-month range. With EEM trading at about $147.50, we might trade a single strike of 145 or 150—but because it’s on the early side, we decided to go with a double-calendar, to give us a little more room for price movement.

Our usual approach to a double-calendar would be to choose strikes equidistant from the current price (for example, 140 and 155). But if we did that right now with EEM, we’d end up with a slightly bullish bias. The March-to-May rally seems to have run out of steam, and with the traditionally weak summer season nearly upon us, we decided to bias this trade very slightly bearish instead, using the 150 strike on the upper spread. This still gives us 8-1/2 points to run (to break-even) on the up side, while leaving a nice 12-point cushion in case of a sell-off.

EEM options are on the March-June-September-December cycle, so July expiration isn’t trading yet. Therefore, we had to use September on the back end, which makes for a higher net debit—but it also provides the opportunity to possibly roll the short legs out for additional profit if the stock remains stable.

The Trade

Think of a double-calendar as an iron condor, only with the spreads between the long and short legs going horizontally instead of vertically. Were opening the following position:

+2 EEM Sept 150 call
-2 EEM June 150 call
+2 EEM Sept 140 put
-2 EEM June 140 put
for a net debit of $9.32.

Our break-even points are at about $135.50 and $156 on the underlying share price. Note that we trade a minimum position of two contracts, because adjustment may require splitting the position. Also note that EEM is not as liquid as the ETFs we typically trade with Condor Options (e.g., SPY or QQQQ), and the bid-ask spread is wider—so you might have to give up a few pennies to get filled.