I have started to work on guerrilla calendars seriously. I have constructed a set of rules based on data from Sheridan and others.
I was looking at an Aug Sep WAG ATM calendar. The 29s are 96 cents for the front, and $1.28 on the back (these are bid and ask). So doing it one time costs me $32 a contract. A ToS round trip for 4 contracts is $6 at $1.50 a contract.
So if I set a target profit of 20% of my $32, that is $6.40. So after commissions I have a whole 40 cents left to spend on my celebration dinner!
Yet this trade follows all the rules that I have looked at - volatility, skew, front vs back prices, minimum short premium etc.
I suspect I need to trade a bigger underlying, but surely that should just be reflected in a "minimum cost per contract".
Does anybody have enough practice on these to have a rule they feel comfortable with?
Bill
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