How to Build a Double Calendar Spread

A double calendar is a range-based trade, which has a wider break-even range, and therefore a larger probability of making a profit, writes Russ Allen of Online Trading Academy. Last time, I wrote about calendar spreads and demonstrated how they could be used as a directional spread, relying on underlying price movement, instead of a range-based theta play (a trade that profits from time decay as long as price stays in a range). My directional example was bullish, but calendars can be used as a bearish position too. Today well look at what happens when you put two calendar spreads together. This results in a trade that also is range-based, like the neutral single calendar. But instead of having a profit peak at just one strike price, it can make most of its maximum profit over a wider range of prices. Like the single calendar, the double calendar benefits from an increase in implied volatility. In this way, it is different from the iron condor, another popular range-based theta play. The iron condor is best used in times when IV is already high and expected to fall; the double calendar when IV is low and expected to rise. Last week, with SPY around $161, we compared two September/July SPY call calendars; a neutral one at the 161 strike, and a bullish one at the 168 strike. The 161 calendar was neutral, and would benefit from SPY staying as close to 161 as possible. Its profit depended mainly on the quick loss of time value in the July calls. The 168 calendar was not neutral. With a strike price $7 above the price that was current at that time, it was bullish, depending on an increase in the price of SPY for its profit. The increase in price of the underlying would push up the value of both the July and the September options; but the short July one would expire soon, leaving the long September one with two months of time value. We would then sell the September options and cash in that time value. Each of these two calendars would benefit from an increase in IV, as the greater time value in the long September options would increase more than that in the short July options. Since some more time has gone by, the current choice for the calendar spread would be the Octobers for the long side (which should be more than 90 days out) and August for the short side (which should be less than

60 days out, but not too much less). Below is the current diagram (as of July 3) for the neutral 161 call calendar spread. It includes a long October 161 call at $5.56, and a short August 161 call at $3.69, for a net debit of $1.87:

The diagram above shows that on the day of the expiration of the August short call, the spread would make a profit if SPYs price were anywhere between $155.54 and $166.93, a 10-1/2 point range. Maximum profit would be $221, which would occur only if SPY were exactly at the $161 strike on that day. Profit falls off fairly steeply both at lower and higher prices than $161. Maximum loss would be the $176 debit. Without any change in IV, this trade could work if we had identified a strong demand level above $155.54 and a strong supply level below $166.93, both of which we expected to hold until the August expiration. Now lets see what effect an increase in volatility would have. To illustrate the effect dramatically, well use a large increase, say 50%, in implied volatility. This would increase volatility from about 16% to 24%. That level of IV was last seen seven months ago, and is not unheard of by any means.

Below is a payoff diagram for this same spread, the only difference being that 50% increase in implied volatility:

A Strategy for Ranging Underlying Notice that the maximum profit has almost doubled, from $221 to $427. This is because the long October option would now have had its time value inflated considerably by the increase in IV. That long options time value at the short options expiration is the key to profit on this trade. So a neutral calendar can be a good play if you believe that price will stay in a range, and its likely that implied volatility will incre ase. Its downside, however, is that its maximum profit is attained only at the exact strike price. Is there any way we could get a neutral calendar to pay off a high proportion of its maximum profit over a wider range than just a single point? In fact there isby doubling it up. A single calendar whose strike is at the underlyings current strike price is price-neutral. As we saw last time, a single calendar at a higher strike price is a bullish trade. It also follows that a single calendar at a lower strike price is bearish, since the strike price is the point of maximum profit. How about doing one calendar that is slightly bearish, together with another calendar that is slightly bullish? That is the idea behind a double calendar. An example is shown below, using the $157 and $166 strikes, each about 4-1/2 points away from the $161.40 current SPY price:

Notice these differences compared to the original single calendar diagram: Costs roughly twice as much as the single calendar, with a debit of $343 compared to $187. Max profit (assuming no volatility change) is a little less, at $186 compared to $221. BUTbreak-even price range is a much wider for the double, at $154.05 to $169.01 (15 points wide) compared to the 161 single calendars range from $155.54 to 166.93 (10.5 points). This increases the probability of profit for the double calendar to 65%, compared to 53% for the single calendar. (These probability estimates come from the probability calculator built into TradeStation and other platforms, calculations not shown here). ANDas shown by the blue horizontal arrows, there is a fairly wide price range within which a large fraction of the maximum profit can be made. This is in contrast to the single calendar, where maximum profit is made only with the underlying settling exactly at the strike, and falls off steeply on either side of it. So a double calendar, like the neutral version of the single calendar, is a range-based trade. It has a wider break-even range, and therefore a larger probability of making a profit. Any profit it does make will be larger than the single calendar would, unless the price were to be very near the single calendars strike. Finally, we saw earlier that a single calendar would be greatly helped by an increase in implied volatility. Lets give the double the same treatment. Below is a diagram of the same 157/166 August/October double calendar as above. The only difference is a 50% increase in IV, from 16% to 24%:

From this, we can see that the double calendar is helped even more than the single by an increase in implied volatility. Its maximum profit soars from $186 (at current volatility, earlier diagram) to $567, almost tripling. This is because it has two long October options, at the 157 and 166 strikes, which both will be inflated by the increase in IV. We realize the profit by selling these October options when the August options expire, thus cashing in the inflated time value in the Octobers. So whats not to like about the double calendar? Not much, as long as the underlying price stays within the breakeven range. If it threatens to stray outside though, losses can accumulate quickly, so fast action is required. This is no surprise. We will have chosen our strikes so that our breakeven prices are farther away from the current price than the nearest quality supply zone and demand zone. In summary, the neutral double calendar can be an attractive choice when the underlying is expected to remain in a range, and implied volatility is expected to increase.

Learn How to Make Money Trading RAX Double Calendar Spreads

Yesterday, RAX announced earnings after the close and heres how I plan on making money off the news. As always, when scouting for potential option trades you must always consider these three variables:

1. Price which direction and what magnitude of a move are you expecting? 2. Volatility do you expect implied volatility to increase or decrease while youre in the position? 3. Time how long will it take for your hypothesis to unfold? Price As noted in the chart above, it appeared the bulls had momentum on their side. After a brief selloff, RAX rallied back above its key moving averages, pulling back slightly right before the announcement. If, at that time, I had to choose a direction I definitely would have guessed to the upside. However, thats why I dont like choosing sides before an earnings announcement because anything can happen! Hence, my predisposition toward hedged trades entering both bullish and bearish option strategies at the same time. Volatility As usual, implied volatility was running sky high leading up to their announcement. In fact, the options market was projecting about a $6.50 move. Remember, the demand (or lack thereof) for calls and puts is what drives implied volatility.

Since demand is elevated heading into an uncertain event such as earnings (people are busily buying/selling calls and puts to hedge and speculate), implied volatility rises to a much higher level than it normally trades at. Simply check out the implied volatility readings for the November options in the two risk profiles posted below. Before the announcement the implied volatility for the November options stood at 67.89% for the calls and 82.49% for the puts. However, today those same November options are trading at 41.84% and 39.82%, respectively. Implied volatility got crushed! As a result, I always look to take advantage of that volatility implosion by choosing option strategies that sell rich front-month options and hedge by buying cheaper long-dated options. In short, ahead of earnings announcements I LOVE to use double calendar spreads. Granted, it increases my cost of doing business but I prefer to have a higher probability of making some money regardless of which direction the stock moves versus betting on a directional move and potentially making nothing. Time Given that the announcement was after the close this is definitely a case of instant gratification. The only thing I didnt like about this position is that RAX doesnt trade weekly options. However, I mitigated that negative by skipping a month and buying January options. This gives me two opportunities to generate income to offset the cost of the January options, let alone any appreciation in the overall position. Heres what I bought: Using the projected move above ($6.50) I chose strike prices that were roughly that far away from the price of the stock at the time I placed the trade. With RAX trading at $66.28 I bought 5 contracts of the Nov-Jan 70 call calendar spread for $1.65 or $825. I also bought 5 contracts of the Nov-Jan 60 put calendar spread for $1.33 or $665. My total investment is $1,490, which is the most I can lose. This is what the risk profile looked like yesterday before RAX announced their earnings:

(Chart by thinkorswim) Heres what the P&L graph above, also known as a risk profile, tells you:

The stock price is displayed along the x-axis. The profit/loss of the position is displayed along the y-axis. The two lines shown on the chart depict the profit and loss of the position. The red line shows your profit or loss at expiration. The white line shows your profit and loss as of today. Those two dates are displayed in the lower left hand corner of the risk profile. The breakeven points are where the lines intersect the x-axis. The Greeks are displayed below the risk profile. The two outer dashed vertical lines encompass the expected range of a 1 standard deviation move between now and Nov. expiration. The middle dashed line is the current price of the stock as of the close today. Ideally, at expiration I want RAX to close at either $60 or $70, which will enable me to realize my maximum profit potential. So how much can I make? Well, note the difference between the risk profile above the the snapshot below about a $500-$750 difference! Heres the current risk profile based upon todays closing prices:

(Chart by thinkorswim) Why the discrepancy? Implied volatility crush! Once the news or risk is known then the air comes right out of the options, deflating your profit potential in the process. Since I bought the January options its not as pronounced as if I had bought the December options. Nevertheless, the position is currently profitable and I still have time for RAX to hit my sweet spot. The icing on the cake Whats more, once November options expire Ill have the added benefit of selling the December options, which can generate even more money into my account. Obviously, I want RAX to make a move one way or the other and gravitate toward either one of the strike prices I sold (60 & 70). Time will tell Go BIG or go broke! Steve

Feb 4, 2012

$AAPL Feb'12 Weekly Double Calendar Trade Idea

Apple Inc. reported earnings on January 24, 2012 and the stock gapped up 30 points and is now trading near all time highs. I wrote about selling options premium in weekly options to play Apple's earnings. If you look at Implied Volatility after that report, you'll notice that it went from 33.47% to 21.96% and today it is around 19.42%

This is a Implied Volatility vs Historical Volatility chart :

IV vs HV 1 Year daily chart

Can Implied Volatility continue to decrease? YES. But I am more interested in a strategy that will make money if IV rises. I think Calendar Spreads or Time Spreads could work here. Calendar spreads benefit from passage of time (Theta) and an increase in volatility (Vega). My idea is a bit more complicated, because it involves buying an out of the money call calendar spread and buying an out of the money put calendar spread. This is what makes this a Double Calendar Spread. This trade is put on by: Sell Feb2'12 (W) 465 call and Buy Feb'12 (M) 465 call for a debit of 1.65 Sell Feb2'12 (W) 455 put and Buy Feb'12 (M) 455 put for a debit of 1.75

Risk Profile for this trade :

This trade makes money if $AAPL does not make a big move up or down by the expiration of the sold options (W - weeklys) and volatility increases from current levels. One important thing to keep in mind is that after sold options have expired, bought options (M - montlys) are still open and they need to be sold to completely exit out of this position.

Let's take a quick look at possible outcomes:

3 Days in this trade, $AAPL moves up 10 points and IV increases by 5%

74.92/340 = 22.03% Gain

3 Days in this trade, $AAPL moves down 10 points and IV increases by 5%

22.54/340 = 6.62% Gain

It's always a good idea to have a plan before entering these kinds of trades. Knowing when and how to make an adjustment if a trade starts to go the other way. Where and how to take profits, and when to exit out completely. That is what we focus

on atOptions4Income. Remember, making secondary to the preservation of capital.

money

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Always remember to make sure you understand all the risks involved and speak to a professional before making any trades. Good Luck.

Using Double Calendar Spreads to Capitalize on Earnings

IBM will report earnings after the closing bell on Tuesday, January 18. For traders maintaining a position in common stock during earnings releases and the frequent price gyrations can result in uncomfortable moments. Earnings releases for the options trader do not force us to take a position in which we must correctly predict the direction of price action stemming from the earnings release. By exploiting the typical changes in option pricing that reliably and reproducibly occur as earnings approach, it is possible to establish a broad potential range of profitability that extends for a considerable distance both above and below the current price of the underlying. The core point of understanding is to recognize that implied volatility (IV) reproducibly increases in the series of options that will expire after the impact of earnings has been reflected in the price of the stock. Using the standard option pricing models, IV is directly correlated with option prices being rich or lean. In the specific case under consideration, IBM monthly options will expire this Friday, January 21. A further predictable characteristic of this IV increase is that this juiced IV will drop substantially and rapidly following the release of the earnings and the reaction of price of the stock to this event. Armed with this knowledge of the characteristic behavior of IV, let us consider a trade to exploit this predicted sequence of events. The trade structure we will use is that of the double calendar spread. This spread is established by selling the front month options with the juiced IV and buying longer dated options with lower IV. The fundamental rationale for this trade is that we are going to sell rich option premium and buy normally priced premium. As a first step, consider this option pricing matrix for IBM from this morning (IV is labeled MIV in this proprietary software):

As highlighted by the ellipses and horizontal arrows, it is clear that the predicted increase in IV has occurred and there currently exists a horizontal volatility skew. The next step in understanding this trade is to check to be sure the historic range of volatilities which are typical for this underlying. Below is an embedded daily chart of the implied volatility. When considered together with the first chart of current pricing, it is clear that we are selling rich premium and buying more normally priced premium.

With this understanding, we can now consider the performance graph of this double calendar trade. It is constructed with four individual legs which are executed by buying two individual calendar spreads. It should NOT be executed in four individual trades. The specific trades are to sell the January 155 calls, buy the February155 calls, sell the January 145 puts, and buy the February 155 puts. The expected performance graph is embedded below:

As can be seen from the graph, the trade has breakeven points of 139.98 to 159.30. The magnitude of the predicted move can be imputed from the price of the at-the-money option straddle. That analysis gives a range of 145.90 to 154.10, price values well within the profitable zone of the trade. What are our points of risk on the trade? Risk comes from two sources in a trade such as this: price and IV. If price exceeds our breakeven points, the trade will be unsuccessful. If IV of the long legs collapses more than projected, the trade will produce losses. Risk is crisply limited to the amount paid for the trade; you cannot lose more than the capital invested. This is an example of a controlled risk trade seeking to capitalize on well recognized relationships between an earnings release and option pricing. This is not a gimmee trade, but represents a reasonable risk:reward situation. As with all trades, it is presented for educational purposes only and does not constitute a recommendation.

The Basics of Double Calendar Spreads

This complex option structure combines spreads at two different strike prices and is very similar to the double diagonal structure. See how these strategies work and how each is impacted by implied volatility. Both double calendars and double diagonals have the same fundamental structure; each is short option contracts in nearby months and long option contracts in farther-out months in equal numbers. As implied by the name, this complex spread is comprised of two different spreads. These time spreads (also known as horizontal spreads and calendar spreads) occur at two different strike prices. Each of the two individual spreads, in both the double calendar and the double diagonal, is constructed entirely of puts or calls. But either position can be constructed of puts, calls, or both puts and calls. The structure for both double calendars and double diagonals thus consists of four different, two long and two short, options. These spreads are commonly traded as long double calendars and long double diagonals in which the long-term options in the spread (those with greater value) are purchased, and the short-term ones are sold. The profit engine that drives both the long double calendar and the long double diagonal is the differential decay of extrinsic (time) premium between shorter-dated and longer-dated options. The structural difference between double calendars and double diagonals is the placement of the long strikes. In the case of double calendars, the strikes of the short and long contracts are identical. In a double diagonal, the strikes of the long contracts are placed farther out of the money (OTM) than the short strikes. So why should we complicate life with these two similar structures? The reason each strategy exists is that they each give a trader different result in response to changes inimplied volatility (IV), or in option Greek" speak, the Vega of the position. Both trades are Vega positive, Theta positive, and Delta neutral presuming the price of the underlying lies between the two middle strike pricesover the range of profitability.

However, the double calendar positions, because of placement of the long strikes closer to at the money (ATM) responds favorably more rapidly to increases in IV, while the double diagonal responds more slowly. Conversely, decreases in IV of the long positions impacts negatively double calendars more strongly than it does double diagonals.

Gain an Edge with Calendar Spreads

A trader reviews the three key forces that drive the options market, and using a recent winning trade as an example, shows how a calendar spread trade was identified and executed. When considering the specific architecture of the various option trades that occupy an option trader's day, the overriding consideration is to put as many factors at your back as possible. Remember that the trades are impacted by the three primal forces of the option traders' world: Price of the underlying, time to expiration, and implied volatility. Trades designed to maximize the positive effect of each of these variables have a much higher probability of success. One commonly used strategy is that of a calendar spread. This position is constructed by selling one shorter-dated option and buying a longer-dated option at the same strike. The calendar may be constructed in either puts or calls, but each individual calendar consists of the same type of contracts-either puts or calls-not a mixture of both. The profit engine for this trade is the differential rate of decay of the time component (extrinsic value) of an option. Remember that the time premium of all options goes to zero at the time of their expiration. Furthermore, an essential characteristic of all options is that time decay is not linear; the decay of time premium of shorter-dated options occurs at a much more rapid pace than does the decay of longer-dated options. In the appropriate environment, calendar spreads can offer outstanding risk/reward trades. What is the environment in which calendar trades prosper? It is the environment of low implied volatility. How does a trader decide what is a low volatility environment? He must consider the situation in the specific underlying for which he is considering a trade. Many traders are aware of the VIX, which is the implied volatility reflective of the broad-based SPX index. However, databases from various vendors are available and track the implied volatility of specific underlyings.

Incorporation of the current value of these volatility measures is essential to ensuring the success of a variety of trade structures, but it is especially important in calendars. An example of the type of chart that the successful option trader needs to consider is illustrated below. Note that statistical volatility, or the volatility calculated from the historical behavior of price, is displayed in brown. The implied volatility, which is the critically important variable for option traders, is displayed in blue. We will return to this chart in a moment, but for now, notice the current relationship of the blue line to its recent position.

Click to Enlarge The time frame over which calendars have historically been used is from one month to another; for example, a March-April calendar spread. Profit accrual in these monthly calendars has historically been quite slow and steady over a wide range of prices. However, the recent availability of weekly options has provided traders with "warp speed calendars." Let us consider an example of such a trade and how appropriate selection of vehicles can put the wind at our backs. Thursday morning, I noticed a chart pattern that I felt suggested a high probability that Netflix (NFLX) would trade higher over the day. In considering and modeling various possible structures for a short-term trade, I was struck by a very favorable risk/reward scenario for this stock within the structure of a calendar trade.

The favorable components were: 1. Availability of very liquid weekly options that would expire the next day and a week from the next day 2. The existence of substantial time premium in the options with 30 hours to expiration 3. Reasonable implied volatility within the options in which I was considering a trade, and the fact that these volatilities were the same in both the short- and longer-dated options at a value of 43% The trade was initiated at approximately 9:30 am and at the time of inception had the following P&L graph:

Click to Enlarge Price remained within the profitable zone reflected in the graph above, and the trade was removed a few minutes before the closing bell for a total profit of slightly over 10% of invested capital. The primary profit engine was the decay of time premium within the short option leg. Opportunities such as this are routinely available for the knowledgeable options trader. Such opportunities are not available for long periods of time and must be taken as they present themselves. It is for this reason that traders who wish to benefit from such trades must be prepared in advance with the knowledge of options behavior.

The Calendar Spread Option Trade

The Calendar Spread, also known as the Time Spread is a favorite strategy of many option traders, especially market makers. The Calendar is basically a play on time and volatility. It is comprised of two options, both at the same strike price. One is a near month option, which is sold. The other is a farther out option which is bought. So you are selling a near term option and buying a farther out term option and paying for the trade. Thus, the Calendar Spread is a debit trade. The Calendar Option Spread Makes Money in Two Ways. The first is with time decay. The sold option will decay faster than the long term option. As long as the underlying instrument stays near the strike price. The second way a Calendar Trade makes money is with an increase in volatility in the far month option or a decrease in the volatility in the short term option. If there is a rise in volatility, the option will gain value and be thus increase in value. So if the underlying drops in price, chances are the volatilities of both options will increase. The Benefits of Calendar Spreads There are several benefits to the Calendar Option trade. 1. It is relatively inexpensive. You can put these trades on for just a few dollars in lower priced stocks. 2. It is easy to adjust. There are many calendar spread adjustments to choose from and they are realtively easy to implement. 3. Since the calendar is a debit trade, the maximum a trader can lose is the amount of the debit and thus risk is limited. 4. The risk/reward is great. 5. If there is a sharp rise in volatility, the trade can increase in value 2030% or more in just a couple days.

The Negatives of Calendar Spreads 1. Calendar spreads use a lot of contracts so your commissions might be higher. 2. If there is a sharp drop in volatility, the trade can lose 20-30% or more in just a couple days. 3. The trade is one that needs to be watched carefully and adjusted when needed. 4. The stock or underlying needs to stay inside the breakevens for the trade to be positive. Quick moves up or down can hurt the trade.
Calendar Spread Example
- link to blog post

Here's an example of a Calendar Spread Trade that I posted on my blog as a papertrade and traded it like a normal trade. Calendar Spread Trade Video. The video is a little grainy. GLD (ETF for Gold) at the time was trading at 125.50. The Calendar was entered by Selling the Oct 125 Calls and Buying the Nov 125 Calls. This set the breakevens on the trade at 122.07 on the low side and 128.14 on the high side. What we wanted was to have GLD stay within the breakevens and as close to 125 as possible. But that was not to be. GLD continued to advance and was soon outside of the upside breakeven. So what I did was added another calendar to the trade. Double Calendar Spread I turned the singular calendar into a double calendar by adding the Oct/Nov 128 Call Calendar Spread. Now I had two calendars and my breakevens became 123.61 and 129.59. The adjustment doubled my margin. As the days passed, GLD kept moving higher, all the way to 130.70. My options were to remove the 125 Calendar, or add a third calendar and make the trade into a triple calendar. I did not think GLD was going to

pull back so what I did was take off both the 125 and 128 Calendars and replaced them with a double calendar at the 130 and 133 strikes. The breakevens became 129.39 and 133.77. By this time I was down $450 in this trade on margin of $3,200. The next few days, GLD calmed down and not only did the trade get back into positive territory it made money. Watch the video for the details. This was not a textbook example of a calendar spread. As you can see, everything did not work well and I was forced to monitor and adjust the trade twice. But I think the example shows that this strategy can work and can be profitable even when things do not go the way you expected them to. Overall, Calendar Spreads are a great option strategy to make decent returns with limited risk in short amounts of time. Most traders enter Calendar Spreads with 30 days or less to expiration to take advantage of the increased time decay during this time. Common Calendar Spread Questions 1. How do you find stocks to trade Calendar spreads on? Normally you want a stock that is not too volatile. I know some traders that make good money trading calendars on IBM every month. Any DOW stock can make a good candidate as long as there is enough premium in the options. 2. Can I trade Calendar Spreads on Weekly options? Yes you can. But I have found that with the weeklys, you have to stay on top of the trade and adjust several times. The commissions eat a lot of the profit. Especially since you have to trade a greater number of calendars in the weeklys because the premium is lower than regular options. 3. What is the risk when trading Calendar Spread options? The risk is the amount you pay for the trade. Since a Calendar Spread is a debit trade you have to pay for it. This amount is the max you can lose. 4. Is it true you can make 100% or more on a Calendar Spread?

Yes you can, but it is very rare. In order to make that much you have to be in the trade until expiration and have the stock be extremely close to your strike.

The Beauty Of The 'Neutral Calendar Spread' Using Weekly Options

While I am a big proponent of many options strategies, and I try to know them all, one of my favorite trades to make is the neutral calendar spread using weekly options. Generally, I do not like to trade weekly options when I am bullish or bearish on a stock. However, they have opened up many doors that have been previously unavailable. For example, I use weekly 'reverse iron condor' strategy with the SPDR Gold Trust (GLD), Molycorp (MCP), Citigroup (C), and the iPath S&P 500 Short-Term Futures (VXX). For more information on those trades, please see these links here and herethat I wrote on Seeking Alpha. The "neutral calendar spread" is a strategy that should immediately peak your interest using weekly options. If you are looking for a higher return on investment using any other debit or credit spreads, you will not find one. There are several important factors, however, when choosing to place this trade, which I will go into extensively. In this article, I would like to explain to you how I prefer to use this strategy. Some may disagree with my method, but I will never complain about the results. This trade is extremely manageable and offers many "options" before expiration. I hope you will be able to understand this strategy and add it to your arsenal of options trades that will consistently provide weekly income for you if the following guidelines are followed: Try to use stocks that are heavily traded and non-volatile. Examples include Wal-Mart (WMT), Cisco (CSCO), Intel (INTC), PowerShares QQQ Trust (QQQ), Boeing (BA), 3M (MMM), Johnson & Johnson (JNJ), Microsoft (MSFT), and International Business Machines (IBM). The stock must have weekly options available or when it is the third Friday of each month, which is options expiration. For a list of available weekly options, please see this link here. Place this trade on Tuesday afternoon (preferably only an hour or two before the market closes) for the weekly option. Avoid volatile stocks, such as Salesforce.com (CRM), Apple (AAPL) -especially right now, CF Industries (CF), Baidu (BIDU), Netflix (NFLX), etc.. The strike prices are aligned neutrally according to what the stock is currently trading at when the trade is placed. This is extremely important. Quite simply, some trades just makes no sense. If one side (the call or put option) is biased

towards one direction, it is not a good trade. There are too many other options available with the weekly options that it is time to move on and look for the better trade. This can often happen with stocks that have options available that trade in $2.50 increments. So be careful here. Understand that the neutral calendar spread profits most when it is held just before expiration (Friday). This is when I will usually close the position, preferably 2:00 p.m. EST or 3:00 p.m. EST to gain the most. If the stock is trading where it needs to be according to your profit/loss chart, it will jump quickly in this time frame, literally by the hour. Double Calendar - New Fruit For Iron Condor Traders A great option trade for die hard iron condor traders who are looking to expand their option strategy repertoire is the double calendar spread. The double calendar is simply two separate calendar spreads placed on the same stock or index - usually positioned on either side of where the underlying is currently trading at. What is a calendar spread? A calendar spread is the sale of a front month option at a particular strike and the purchase of a further out month option at the exact same strike. Following is an example of this trade on an underlying we will call XYZ. Sell 1 June 30 Call Buy 1 July 30 Call This spread makes money from the differences which will occur in the volatility levels of the two different options - as well as from the fact that the front month option value will decay at a faster rate than the further out month. A single calendar creates a somewhat narrow 'profit tent' over the underlying - however when two calendars are placed on either side of where the underlying is trading at - creating a 'double calendar' - this 'profit tent' widens out substantially - covering a good sized range both above and below where the stock or index current price point is located. Following is an example 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 What is nice about the double calendar when compared to the traditional iron condor trade, is that this spread can be much more forgiving when large fast moves occur. When one looks at the risk graph of this trade next to the risk graph of the iron condor - you can see how the 0 day current P&L line remains much flatter over a longer distance than the same line on the risk graph of the iron condor trade. In addition, rising volatility benefits the calendar trade, actually pumping more profit into the position. So in a situation where the market starts to suddenly move down, what could be a disastrous situation for an iron condor trade could actually turn out to be great situation for a properly set up double calendar position. Ted Nino is an option selling evangelist - particularly fanatical about trading the Double Calendar, the Iron Condor, Credit Spreads, and the Butterfly Spread. Visit his Double Calendar Blog to learn more about this option strategy including Free Videos and Live Trading Examples.