| Double Calendar - New Food For Iron Condor Traders |
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| Written by Ten Nino |
| Thursday, 04 November 2010 13:48 |
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A good option trade for iron condor traders who are seeking to build up their option trading repertoire is the Double Calendar spread.
A good option trade for iron condor traders who are seeking to build up their option trading repertoire is the Double Calendar spread. What exactly is this trade? The double calendar is simply two separate calendar spreads located on the same stock or index, usually placed on either side of wherever the underlying is presently trading at. What are calendar spreads? A calendar spread is the sale of a front month option at a exact strike and the purchasing of a further out month option at the exact same particular option strike. Immediately below find an example of a calendar spread on an underlying we will name XYZ. Sell 1 June 30 Call Buy 1 July 30 Call The way this spread generates profits is from the variances which will arise in the volatility stages of the 2 different strike options, as well as from the fact that the front month option will without a doubt decay at a swifter rate than the deeper further out month option. A lone calendar spread can make a considerably skinny profit tent on the risk graph. However, when two calendar spreads are put on either side of where the underlying is buying and selling at, setting up a double calendar spread the profit tent widens out greatly, overlaying a larger sized range both above and beneath where the stock or index is currently located. Following is an illustration of a double calendar spread with XYZ trading at 30. Sell 1 June 25 Put Buy 1 July 25 Put Sell 1 June 35 Call Buy 1 July 35 Call A cool thing about the double calendar when compared to the traditional iron condor trade, is the fact that the double calendar spread will be significantly more flexible when large rapid movements occur in the stock market. If you were to view the risk graph of the double calendar spread right next to the risk graph of the iron condor spread, you would see how the 0 day active P&L line holds up much better over an extended range than the similar line on the risk graph of the iron condor trade. Finally, rising volatility is a good thing for calendar trades, because it will push more profits into the trade. Where an Iron Condor can be hurt by rising volatility levels - and even wind up creating a trading disaster - because of how calendar trades work - the same type of move can create a profit windfall in a double calendar trade. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. To learn more about the Double Calendar and the Iron Condor spread strategies visit Ted Ninos website at: http://www.doublecalendar.com Check here for free reprint licence: Double Calendar - New Food For Iron Condor Traders. |