Testimonials
Windows Embedded CE 6.0 download del prodotto chiave Parajumpers Gobi Nobis online nobispjsjackets.ca canada goose sverige Office 2013 Product Key Oracle exams canada goose limited edition ovo

June 30, 2011

All In the Family: Double Calendars vs. Double Diagonals

Filed under: Options Education — Tags: , — Dan Passarelli @ 9:39 am

Because it is the fancifully named winged beast category that garners the most attention, I thought today we could focus on the often overlooked members of the group: double calendars and double diagonals.

Double Calendars vs. Double Diagonals

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 (aka 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 the either position can be constructed of puts, calls, or both puts and calls. The structure for each of both double calendars or 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 OTM than the short strikes.

Why should I complicate my life with these two similar structures? The raison d’être of the double calendars and double diagonals is the position response to changes in IV; in optionspeak, 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 prices—over the range of profitability. However, the double calendar positions, because of placement of the long strikes closer to 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.

In future missives, nuances of strike selection and dynamic position management in the potential convulsions of market gyrations will be discussed. In addition, the other family members will be introduced and guidelines will be discussed to help the trader select amongst these close relatives when considering trades.

June 16, 2011

All In The Family

Filed under: Options Education — Tags: , , — Dan Passarelli @ 9:29 am

For the new options trader one of the most overwhelming concepts is the wide variety of choices of trade structures available in the new world into which he has entered. The world of stock trading is defined by only two initial choices when considering a trade: short or long. The world of options has many more choices when initiating a trade and each option trade is most profitably defined not only in terms of price but also implied volatility and time.While description of each and every type of option trade is well beyond the scope of a brief discussion such as this, it is helpful to focus on the various families of option trades in order to begin to become familiar with the unique characteristics of each member. One of the most frequently discussed types of trades can be described as those that are profitable over a wide range of prices of the underlying. This group of trades finds its basic family identity in the shape of the P/L curve as well as in the signature family blood type of theta positive.As in any diverse family, there is a wide variety of individual characteristics. The names of the individual strategies within this family is numerous, often duplicative, and frequently confusing. One subgroup of these range bound strategies is flamboyantly named as winged beasts: condor, iron condor, butterfly, iron butterfly, and split strike butterfly. Another less colorfully named branch of the family is that of the double calendar and double diagonal. The structure of each of these trades has a characteristic skeletal framework, but within these defining limits, the latitude in fine structural details is broad.