Calendar spreads are one of the most beginner-friendly options strategies (the other being the bull-bear spread)
Compared with other strategies, the calendar can achieve huge and rapid returns when the IV is low in the future and the IV is high in the near future, so it is very popular.
The specific operation is to buy a forward call, and then sell one (or more) recent cs to earn the difference in theta. The deltas of the two lists should be as close as possible, but they do not need to be exactly the same.
The disadvantage is that this operation will face two problems,
1 The near-end SELL C will be penetrated when encountering a big wave of market conditions, causing gamma loss.
2 Because the price of remote C is high, once the market plummets, the premium will be lost (the same is true for vega plummeting)
There are many details about the overall operation of the calendar. Here we will mainly talk about how to solve the problem of 2 and avoid the loss of royalties caused by the sudden price drop (or VEGA drop).
First, open signalplus and take a look at the quotation, especially the APR row. It can be clearly seen that the September quotation of 35,000 is around the annualized rate of 18, but considering that the royalty is too large, if we are just doing a calendar, we should choose The royalty occupies 35,000 remote CALLs on fewer dates as our delta reserve. However, because we are a junior calendar, our core focus is the APR price per unit delta. For example, here we take 0.38 divided by 18, which is probably close to 2.1 Ratio, forty thousand here is also a ratio close to 2.1. Considering that their left IVs are actually not much different, from a royalty perspective, it is safer to choose 4W as the forward calendar. Because we invest less in royalties.
Once the IV rises, the VEGA value added by 4W will also be obvious, and the DELTA will quickly amplify. However, the annualized price of the forward ATM of the calendar is actually very high. If you calculate it, it is basically close to the cost of 1.5, which is a bit higher than that of 3 months. Close. So ATM calendar is not a good choice.
For comparison, this is the option quote on April 14th (about 20 days later). A delta of 0.28 can probably reach an annualized profit rate of 35%, which is close to 200%. Because we hold out-of-the-money options, once the market really hits a high volume and breaks through to around 33,000, the profit from the forward IV increase will be good, and it will increase the delta value of our 40,000 option, and it will not be too harmful to the near-end. Uncomfortable. The only disadvantage is that when we use delta balancing here and it is twice oversold, we may need to have a certain futures stop loss strategy (of course the simplest is to use a small LONG set in the middle of the two dates). Or do DDH directly close to the delivery date.
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