Double Calendar – New Sport For Iron Condor Traders
A superb option trade for iron condor investors which are searching to grow their option tactic collection 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 is a calendar spread?
A calendar spread is the sale of a front month option at a specified strike and the purchase of a further out month option at the same particular same strike.
Following is a sample of a calendar spread on an underlying we will call XYZ.
Sell 1 April 20 Put Buy 1 May 20 Put
The above spread generates profits through variations in the volatility levels of the 2 distinct options, as well as from the fact that the front month option value will decay at a much quicker pace than the deeper 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 May 15 Put Buy 1 May 15 Put Sell 1 May 25 Call Buy 1 June 25 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.
To learn more about the Double Calendar spread visit Ted Ninos website at: http://www.doublecalendar.com
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