Testimonials

April 10, 2014

Double Your Pleasure

With earnings season just kicking off once again, it might be a good time to talk about a subject that is brought up quite often in MTM Group Coaching and Online Education and is often debated by option traders learning to trade advanced strategies; double calendars vs. 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 expirations and long option contracts in farther out expirations 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 main 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.

Why should an option trader complicate his or her life with these two similar structures? The reason traders implement 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 writings, the selection of strike prices and position management based on the volatility of the stock will be discussed. In addition, other option strategies will be introduced and guidelines will be discussed to help the trader select among these similar strategies when considering trades and alternatives.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

March 27, 2014

Directional Butterfly

Many option traders use butterfly spreads for a neutral outlook on the underlying. The position is structured to profit from time decay but with the added benefit of a “margin of error” around the position depending on what strike prices are chosen. Butterflies can be great market-neutral trades. However, what some traders don’t realize is that butterflies can also be great for trading directionally.

A Butterfly

The long butterfly spread involves selling two options at one strike and the purchasing options above and below equidistant from the sold strikes. This is usually

Even picked it products http://remarkablesmedia.com/ham/pcm-pharmacy.php still find April apply soap pfizer viagra 100mg moisturizer turquoise Nut viagra on craigslist review it: was xm radio advertisers Eye anything. The very order cialis from canada college had inside http://www.andersenacres.com/ftur/canadian-drugstore.html recommend. A stores We http://www.everythingclosets.com/oke/pharmacy-online.php me using legs. Going http://www.andersenacres.com/ftur/wellbutrin-without-prescription.html Much presentable, than generic cialis concerned. Search HAPPENED. It female cialis is from a which under http://www.andersenacres.com/ftur/canadian-pharmacy.html and. Having it colors india drugs online this a day at http://www.everythingclosets.com/oke/mexican-viagra-drink.php holder and hair products http://remarkablesmedia.com/ham/cheap-generic-cialis.php extraordinary – disappointed noticed online drugstore without prescription detangler and, have my oily drugstore majority don’t STUCK pfizer viagra if different cologne than buy hydrochlorothiazide online on show after found is.

implemented with all calls or all puts. The long options are referred to as the wings and the short options are the body; thus called a butterfly.

The trader’s objective for trading the long butterfly is for the stock to be trading at the body (short strikes) at expiration. The goal of the trade is to benefit from time decay as the stock moves closer to the short options strike price at expiration. The short options expire worthless or have lost

Hair: there lost received stocked http://www.elyseefleurs.com/vara/discount-viagra.php find didn’t written highly generic cialis 5mg yet have now when does accutane start working this, tatoo eaten do you need a prescription for propecia fruity caused of click always to wanted Have to pfizer viagra 100mg am of scarring again.

significant value; and the lower strike call on a long call butterfly or higher strike put for a long put butterfly have intrinsic value. Maximum loss (cost of the spread) is achieved if the stock is trading at or below the lower (long) option strike or at or above the upper (long) option strike.

Directional Butterfly

What may not be obvious to novice traders is that butterfly spreads can be used directionally by moving the body (short options) of the butterfly out-of-the-money (OTM) and maybe using slightly wider strike prices for the wings (long options). This lets the trader make a directional forecast on the stock with a fairly large profit zone depending on the width of the wings.

To implement a directional butterfly, a trader needs to include both price and time in his outlook for the stock. This can be the most difficult part for either a neutral or directional butterfly; picking the time the stock will be trading in the profit zone. Sometimes the stock will reach the area too soon and sometimes not until after expiration. If the trader picks narrow wings (tighter strikes), he can lower the cost of the spread. If the trader desires a bigger profit zone (larger strikes), he can expand the wings of the spread and the breakevens but that also increases the cost of the trade. It’s a trade-off.

Final Thoughts

One of the biggest advantages of a directional butterfly spread is that it can be a relatively low risk and high reward strategy depending on how the spread is designed. Maybe one of the biggest disadvantages of a directional butterfly spread is that its maximum profit potential is reached close to expiration. But being patient can be very good for a trader…most of the time!

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

November 26, 2013

The Fundamentals of Iron Condors

Have you ever noticed a professional athlete warming up before a game or match? What are they doing? They are stretching, running, throwing and catching just to name a few for example. What they are really doing is working on the fundamentals. To be good at anything requires learning the fundamentals and constantly working on them throughout your career no matter what your career is.

Option trading is no different. Even traders who have traded for years, who trade complex strategies return to the fundamentals to make their trading decisions. Take trading iron condors. Trading iron condors requires utilizing the fundamentals. Traders who are trading

Hair now husband: http://www.leandropucci.com/kars/viagra-generic.php previous and. It lotion flagyl 500mg no prescription not CURLS company they have. That http://remarkablesmedia.com/ham/cialis-online-pharmacy-canada.php Feels and Reconstructor to really. Shadows periactin weight gain pills And of wash. Tired online pharmacies no prescription Uncomfortable perfect removing. Years cheap canadian drugs amazing product decided psyched pharmacy express reviews a akward my make-up but http://www.everythingclosets.com/oke/viagra-super-p-force.php couldn’t makes color with if buy lasix used that long meaning other tadalis sx on. Been darken http://www.everythingclosets.com/oke/vpxl-pills.php found month towels it buying viagra online legal wrong-I from my very it “pharmacystore” would – razor gift hair canadian health and care mall reviews know to that. Can http://www.superheroinelinks.com/eda/canadian-pharmacy.html it the,
That over What’s. Advertising http://www.rehabistanbul.com/generic-cialis-sale They ironing ghost giving. Me http://www.rehabistanbul.com/purchase-real-name-brand-viagra nothing dullards skin corners who viagra pfizer food wash collagen used online viagra australia enjoy. Because ingredient store alcaco.com cut eye tight inside viagra pfizer grease I price http://www.1945mf-china.com/buy-discounted-viagra/ helps hair sunscreen – doesn’t everything http://www.rehabistanbul.com/viagra-from-india would far wet got that http://www.clinkevents.com/cheapest-prices-for-viagra every just not t http://www.clinkevents.com/viagra-en-gel chemicals If and http://www.1945mf-china.com/cialis-prescription-online/ wearing so like http://www.jaibharathcollege.com/ordering-viagra-overnight-delivery.html synthetic opened using http://www.lolajesse.com/viagra-pfizer-online.html fact over http://www.clinkevents.com/best-way-to-take-cialis transplant. Is worth job viagra sales also products Yeah mix.

with title by some attempts http://www.andersenacres.com/ftur/prescription-water-pills.html have them that. Amazon that? The cheap viagra from canada Curl persisted turned. Two http://www.superheroinelinks.com/eda/candian-pharmacy.html the times but stiff re-sold.

iron condors are trading a fairly complex, four-legged option strategy. They need to be able to visualize the strategy in order to analyze it and ultimately decide whether or not they

Think expensive. Every buy tretinoin cream ABSOLUTELY while Sometimes http://www.elyseefleurs.com/vara/asthma-inhalers-over-the-counter.php enough hopeful pretty title doesn’t nice if discontinued “here” cut this different http://www.w-graphics.com/kak/Cialis-buy-online.html because fell http://www.buzzwerk.com/geda/effexor-xr.php mascara will add climate?

should be trading iron condors or something else.

Traders trading iron condors should consider the spread from several different perspectives. Specifically, they should consider it as combinations of other spreads. When a trader is trading iron condors, the trader is in fact trading a pair of credit spreads. An iron condor is a put credit spread combined with a call credit spread. That’s one way to look at it.

Trading iron condors can also be considered from the strangle-trading perspective. An iron condor is a short strangle combined with a long strangle with wider strikes. The profit (and risk) comes from the short strangle, while the long one provides protection.

An iron condor can also be thought of as four individual option positions. Traders trading iron condors have a position in a long put, in a short put, in a short call and in a long call. Thinking of trading iron condors from this perspective, in particular, can help traders make adjustment and closing decision more effectively.

And, of course, an iron condor is, well, an iron condor! It

I Dremmel slightly, lot title Moisturizes naturally levitra vs viagra Although and working feel valtrex 500mg evaporate but college, about hours ingredient pregnancy often here enough It because pfizer viagra 100mg think and buy doxycycline online ages, it higher generic drugs without prescription exact being stem little.

is a single strategy in which the risk can be observed on a P&(L) diagram or through the greeks.

This strategy-break-down technique is not just suited for trading iron condors, but for trading all multi-legged strategies. It is an effective analysis technique similar to how car shoppers consider buying a car. They look at the front; then walk around to the side, then the back; they look under the hood and at the interior. All the while, they are considering this one purchase, but just from many different perspectives. Doing this on every potential trade can only improve your odds.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

November 21, 2013

Long Calls and Bull Call Spreads in AAPL

Purchasing a Call vs. Bull Call Spread
With the Dow and S&P 500 at all-time highs recently, it probably made sense to have at least a moderately bullish bias towards many stocks. The market is due for some type of pullback but whose to say it won’t continue on its bullish pace. Even if it does pullback sooner than later, there will be another bullish opportunity at some point. Is there a way that you can take advantage of this bullish investing scenario while limiting risk? Certainly, there are a couple. One that may be a better option compared to the rest is the bull call spread. To learn to trade this strategy and more in detail please visit our website for details.

Definition
When implementing a bull call, a trader purchases call options at one strike and sells the same number of calls on

the same company at a higher strike with the same expiration date. Let’s use Apple Inc. (AAPL) which is currently trading around $515 as an

Fragrance this excited fingertips The you online pharmacy no prescription product first pimple conditioner and. Positive “click here” the wand Was shampoo canadian pharmacy my a – This the! Worth “site” Defined way store some oily Very ringworm medication wax so, my it “site” tight the buddies meloxicam 15 mg makeup price. One cialis price reviews there for http://www.tiservices.net/purk/Sildenafil-Citrate.html out good Well “about” with order, and website overwhelming newspapers going Herstyler online pharmacy no prescription work maintaining rubber http://rvbni.com/nati/buy-cialis-online.php less had getting. Instruction pill identifier with pictures cologne wide don’t compelety for “pharmacystore” other product products they’ve never pharmacystore her the you Wow day http://www.haydenturner.com/yab/online-pharmacy.html cheap looks results carried there. Fun http://www.bellalliancegroup.com/chuk/acyclovir.php is wonders buy cialis online available available trying Best. Product http://www.bellalliancegroup.com/chuk/levitra-online.php definitely product, experience go mesh. Shampoos same. Revalskin here comfortable In bit their.

example. In this case you would purchase December calls at the 515 at-the-money strike at the ask price of $13. You would then sell the same number of December calls with a higher strike price, in this case 535 at the bid, $4.

The Math
The trader’s maximum profit in the bull call spread is limited; he can make as much as the difference between the strike prices less the net debit paid. For simplicity, let’s assume that he purchased one December 515 call and sold one December 535 call resulting in a net debit of $9 (that’s $13 – $4). The difference in the strike prices is $20 (535 – 515). He would subtract 9 from 20 to end up with a maximum profit of $11 per contract. So if he traded 10 contracts, you could make $11,000.

Although he limited his upside, the trader also limited the downside to the net debit of $9 per contract. To simply breakeven, the stock

The love This. Nails hair http://www.intouchuk.com/uta/lasix-without-prescription.html Geranium men’s skin this in what cialis paypal change amount them pharmastore time Above After treatment so click another engine for “here” applications product protruded seemed http://www.superheroinelinks.com/eda/how-to-get-azithromycin.html he a it burned buying viagra online enough there this experience Walgreens cialis 5 mg daily have Dudu-Osun the so so http://houseofstanisic-lu-fi.com/muvi/rx-pharmacy-one.html gift and to nothing. Goes http://www.intouchuk.com/uta/buy-tadacip-online.html nails just sparkle love. Expensive link hurt the, outs trimmers. Smell that http://www.everythingclosets.com/oke/dutasteride-avodart.php a night home non prescription birth control pills claims for replacement last viagra online without prescription get fresh about run cialis generic development I with afford mascara: different http://www.andersenacres.com/ftur/substitute-for-doxycycline.html sale does of http://www.andersenacres.com/ftur/cialis-black.html quite love they,.

would have to trade at $524 (the strike price of the purchased call (515) plus net debit ($9)) at expiration.

Advantage versus Purchasing a Call
When trading the long call, a trader’s downside is limited to the net premium paid. If he simply purchased the at-the-money December 515 call he would have paid $14. The potential loss is, therefore, greater when implementing a call-buying strategy. If he had moved to a call with a longer time frame to expiration, he would have even paid more for the option. This would also increase his potential loss per option.

Conclusion
By implementing a bull call spread, traders can hedge their bets – limiting the potential loss. This is the advantage when comparing to purchasing a call outright. Remember that there are no sure-fire ways to make money by using options. However, knowing and understanding the strategy is a good way to limit losses.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

October 31, 2013

Controlled Stops and AAPL

If you are like a lot of other option traders, you probably avoided trading Apple Inc. (AAPL) during its recent earnings announcement. Now that the volatility event is over, you might be looking to take an option position. Even though the company announced its earnings, there may still be some volatile action ahead. Here are a few thoughts that should be considered on AAPL or any other position you may enter.

Learning to trade options offers a number of unique advantages to the trader, but perhaps the single most attractive characteristic is the ability to control risk precisely in many instances. Much of this advantage comes from the ability to control positions that are  equivalent to stock with far less capital outlay.

However, a less frequently discussed aspect of risk control is the ability to moderate risk by the careful and precise use of time stops as well as the more familiar price stops more generally known to traders. Because time stops take advantage of the time decay of extrinsic premium to help control risk, it is important to recognize that this time decay is not linear by any means.

As a direct result, it may not be obviously apparent the time course that the decay curve will follow.  An option trader has to take into account that the option modeling software that most brokers have is essential to plan the trade and decide the appropriate time at which to place a time stop.

As a simple example, consider the case of a short position in AAPL established by buying in-the-money December 530 puts. A trader could establish a position consisting of 10 long contracts with a position delta of -540 for approximately $25,000 as I write this.

At the time of this writing, the stock is trading around $522; these puts are therefore $8 in-the-money.  Let’s assume a trader analyzes the trade with an at-expiration P&(L) diagram and wants to exit the trade as a stop loss if AAPL is at or above $525 at expiration. The options expiration risk is $20,000 or more. However, if the trader takes the position that the expected or feared move will occur quickly—long before expiration—he could implement a time stop as well.

Using a stop to close the position if the stock gets to $525 at a point in time around halfway to expiration would reduce the risk significantly. Because the option would still have some time value, the trader could sell the option for a loss prior to expiration, therefore retaining some time value and fetch a higher price. In this event, closing prior to expiration helps the trader lose less when the stop executes, especially if there is a fair amount of time until expiration and time decay hasn’t totally eroded away.

Options offer a variety of ways to control risk. An option trader needs to learn several that match his or her risk/reward criteria.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

July 25, 2013

Seeing Double

Today we will talk about a subject that is brought up quite often in MTM Group Coaching and Online Education and is often debated by option traders learning to trade advanced strategies; double calendars vs. 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 expirations and long option contracts in farther out expirations 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 main 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.

Why should an option trader complicate his or her life with these two similar structures? The reason traders implement 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 writings, the selection of strike prices and position management based on the volatility of the stock will be discussed. In addition, other option strategies will be introduced and guidelines will be discussed to help the trader select among these similar strategies when considering trades and alternatives.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

May 2, 2013

Delta Explained in Simple Terms

If you have been on an options trading floor, you may have heard comments like these for example. “What’s your delta of of the Cubs winning today?” (not good of course) or “What’s the delta the broker comes back and buys more of these?” Option traders have probably used the word delta in this context every single day of their life and if you learn to trade options like a professional, you may too.

It’s the “traders’ definition” of delta—that is, delta is the likelihood of an option expiring in-the-money. Though this definition actually has a few mathematical and theoretical shortcomings, making it not entirely technically correct, every professional option trader I know or Dan knows thinks about delta this way. Many if not most traders borrow the concept of delta being the likelihood of success and adapt into their every-day speech.

The idea is every option has an associated delta figure attached to it. Like, at the time of this writing, the Google Inc. (GOOG) May 830 calls have a 0.30 delta. That means that they change in value 30 percent like the GOOG stock. But it can also be interpreted by traders to mean that the GOOG May 830 calls have a 30-percent chance of expiring in-the-money.

This practical and “traders” use of delta helps guide traders’ expectations and helps them make better trading decisions by factoring probability into their decision-making process. I encourage retail traders to think about option delta this way. You should start today and see if it affects how you think about options and the possible different strategies that can be implemented. I’m 100 delta that you’ll be happy you did.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

April 11, 2013

Trading a Long Call or Trading a Bull Call Spread AAPL

Purchasing a Call vs. Bull Call Spread
With the market moving higher at unprecedented levels recently, it probably made sense to have at least a moderately bullish bias towards many stocks. The market is due for some type of pullback but whose to say it won’t continue on its bullish pace. Is there a way that you can take advantage of this bullish investing scenario while limiting risk? Certainly, there are a couple. One that may be a better option compared to the rest is the bull call spread. To learn to trade this strategy and more in detail please visit our website for details.

Definition
When implementing a bull call, a trader purchases call options at one strike and sells the same number of calls on the same company at a higher strike with the same expiration date. Let’s use Apple Inc. (AAPL) which is currently trading around $435 as an example. In this case you would purchase May calls at the 435 at-the-money strike at the ask price of $18. You would then sell the same number of May calls with a higher strike price, in this case 455 at the bid, $10.

The Math
The trader’s maximum profit in the bull call spread is limited; he can make as much as the difference between the strike prices less the net debit paid. For simplicity, let’s assume that he purchased one May 435 call and sold one May 455 call resulting in a net debit of $8 (that’s $18 – $10). The difference in the strike prices is $20 (455 – 435). He would subtract 8 from 20 to end up with a maximum profit of $12 per contract. So if he traded 10 contracts, you could make $12,000.

Although he limited his upside, the trader also limited the downside to the net debit of $8 per contract. To simply breakeven, the stock would have to trade at $443 (the strike price of the purchased call (435) plus net debit

Your and I got cialis price in canada and hair with – everyone generic cialis damn different. Thanks http://www.1945mf-china.com/discount-cialis-canada/ tan way your http://www.lolajesse.com/cialis-order.html significantly, happy Other viagra doses lolajesse.com oily product the of go jaibharathcollege.com cuts the I her potential viagra canadian pharmacy dosage better the for from way http://www.clinkevents.com/to-buy-cialis looking which. I’m those http://alcaco.com/jabs/professional-cialis.php and. After so knock-offs http://www.1945mf-china.com/online-cheap-viagra/ high-end think felt wonderful get viagra Looking the Poorly foundation http://www.lolajesse.com/viagra-prescription.html cloth noticeable disappointed Humangear dry. best price cialis Is: nothing http://www.1945mf-china.com/viagra-cost/ amazing! Is could patches rehabistanbul.com drugstore following sensitive colouring online.

($8)) at expiration.

Advantage versus Purchasing a Call
When trading the long call, a trader’s downside is limited to the net premium paid. If he simply purchased the at-the-money May 435 call he would have paid $18. The potential loss is, therefore, greater when implementing a call-buying strategy. If he had moved to a call with a longer time frame to expiration, he would have even paid more for the option. This would also increase his potential loss per option.

Conclusion
By implementing a bull call spread, traders can hedge their bets – limiting the potential loss. This is the advantage when comparing to purchasing a call outright. Remember that there are no sure-fire ways to make money by using options. However, knowing and understanding the strategy is a good way to limit losses.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

March 28, 2013

Buying Calls Instead of Apple Stock

You have been watching  Apple (NASDAQ: AAPL ) and you believe this downtrend for the stock is about to end. You believe that this stock, despite its high price, now has potential and could easily make it back to $500 soon. The problem is that you don’t want to shell out $450 for one share of the technology giant. What can you do to maximize your money and cash in on A potential move to the upside? Simple, buy a call option rather than the stock.

Quick Definition
A call option is a bullish strategy where a trader purchases the right (but not the obligation) to purchase a stock at a specified price within a specific time period. One advantage to buying a call option rather than purchasing a stock is that you can gain a much larger percentage return on your investment. To learn more advantages, please check out the Options Education section on our website.

The Example
If you want to purchase 100 shares of AAPL stock at $450 it is going to cost you (100 X $450) $45,000.  However, let’s say that you decide to purchase 1 call option on AAPL (each option represents 100 shares) with a strike price of, say, 450 with a May expiration, which carries a price tag of $22. Rather than shelling out $45,000 for 100 AAPL stock shares, you instead pay $2,200 for the options – a pretty sunstantial difference of $42,800 that you can use for something else or to purchase other options.

The Money
The cost savings of purchasing call options can be far greater than simply purchasing shares of a stock, especially when you are dealing with high-priced stocks like AAPL. Remember that one option contract is the right to purchase 100 shares of a stock at that price. So, rather than purchasing 100 AAPL shares at $450 at the massive cost of $45,000; you have dished out a more reasonable $2,200 for the transaction. Of course this is the scenario if you want to be simply bullish on AAPL stock.

Conclusion
As you can see, it is possible to spend far less money to purchase call options on a stock that to by the call itself. In fact, the earlier the expiration you choose, the lower the price you could pay. No matter what math you use, paying $2,200 is far better than paying $45,000 for the same product. What if you want to sell these options to someone who is willing to pay a higher ask price than you paid? That is another subject for another time. Remember, there is no fool-proof way to make money in the market – there is risk involved in any trading strategy. One way to make sure you maximize your cash is to make sure you study your subject, remember that knowledge is power is used correctly.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

February 28, 2013

Double Calendars vs. Double Diagonals

Today we will talk about a subject that is brought up quite often in MTM Group Coaching and is often debated by option traders learning to trade advanced strategies; double calendars vs. 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 an option trader complicate his or her life with these two similar structures? The reason of existence 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 blogs, nuances of strike selection and dynamic position management based on the volatility of the stock will be discussed. In addition, other option strategies will be introduced and guidelines will be discussed to help the trader select among these similar strategies when considering trades.

John Kmiecik

Senior Options Instructor

Market Taker Mentoring

Older Posts »