Throughout the spring and early summer, we published - entirely for free - our successful calendar spread strategy, called Calendar Options. You can access the full archive of those trades and articles here.
One of the best reasons to trade calendar spreads is that they make a perfect complement to iron condors: condors are structured to profit from decreasing volatility, whereas calendars will profit from increasing volatility. And one of the most distinctive features about the market in 2008 is that…
Since our last Calendar Options bonus trade, we’ve been focusing on preparing the new site and the official launch of the Calendar Options subscription service—our non-directional approach to using calendar spreads as an income-generating strategy. But there’s another important reason we haven’t published a calendar-spread bonus trade since the July options cycle: volatility risk.
The Calendar Options strategy complements our iron condors because each offsets the volatility risk of the other. But unlike an iron condor, a calendar spread’s profit curve…
In another month of fast-moving, trending price action—one of the two worst scenarios for the Calendar Options strategy (the other being a plunge in implied volatility)—we were able to come away with only a small average loss. We played it cautiously from the beginning, expecting the resumption of the bear market to keep price volatility high throughout the cycle. Consequently, we entered just two trades for July.
We had to make one adjustment by the time July rolled around, but both…
We were hoping again this month that we’d be able to roll out the short options in our EEM calendar spread instead of closing the position entirely. But between the sour mood on Wall Street, a lot of economic data coming out next week, and second-quarter earnings announcements picking up, trading is likely to be even more volatile than in a “normal” expiration week.
Bearing in mind that good risk management is essential, we’re closing our entire position, as follows:
Day limit…
We’re taking advantage of the fact that IYR’s share price is exactly at the sweet spot for our adjusted calendar spread and closing the position. We want to scale back our risk prior to expiration week (our EEM position is still open), and at the price below, we’ll have a 6% profit–not too bad for less than two weeks in a volatile market.
Here’s the order we’re placing this afternoon:
Day limit order
Sell to close 2 IYR August 57 put
Sell to close…
Wednesday, October 15, 2008
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