| Double Calendar - New Playground For Iron Condor Traders |
 |
 |
 |
| Written by Ten Nino |
| Friday, 11 June 2010 12:15 |
|
An alternative trade for iron condor traders who are curious about other option income strategies is the double calendar spread.
An alternative trade for iron condor traders who are curious about other option income strategies is the double calendar spread. What is the Double Calendar Spread? 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 closer month option (many times the closest month option) sold at a particular strike price - and the purchase of a farther out month option (many times the next month out option). The farther out month option is purchased at the same strike price as the one that was sold. Following is a sample of a calendar spread on an underlying we will call XYZ. Sell 1 June 30 Call Buy 1 July 30 Call Calendar spreads produce income from the reality that the closer month option value loses value at a faster rate than the farther out month option. A single calendar spread produces a somewhat skinny, profit tent over where the underlying is currently trading at. Nevertheless, when two calendar spreads are used on each side of where the underlying is ticking at, it creates a double calendar. The profit tent on this trade is drastically wider, protecting a larger sized range over the stock / index current trading price. 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. Moreover, growing volatility levels are an advantage to the calendar trade, generating more profit into the position. As a result, in a situation where the market will start to suddenly move, either up or down, what could become a calamitous predicament for an iron condor trade could potentially prove to be good situation for a adequately set up double calendar position. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. To learn more about the Double Calendar spread visit Ted Ninos website at: http://www.doublecalendar.com Get a totally unique version of this article from our article submission service |