Great example, Mark, and thanks. You mentioned the `03 – `04 time frame as being an important era for the floor traders. There must have been a mass exodus from the CBOE floor around that time. Do you have any idea how many traders left and what they were able to do besides teach? I talked with Dan about it, and he said that the profit opportunities just dried up and many were forced to look for other things to do. Pretty sad.
RFH
--- In OptionClub@yahoogroups.com, "Mark Sebastian" <mark@...> wrote:
>
> Robert,
>
>
>
> This is an example of how IV can cause a calendar to lose money. However,
> that is only one way vol can affect a position. It is entirely possible to
> make money on a calendar when IV drops.
>
>
>
> Here is an example based on what Dan and Jim showed:
>
>
>
> Let's take the exact same position, then let's have august drop 5 points and
> September drop only 3 points. How does the calendar perform? The calendar
> makes a touch under 50.00 in August. The September long only loses about 39
> dollars.
>
>
>
> One thing to remember is that the months are correlated and not tied.
> Traders now days actually apply weightings to the months to try and get a
> better idea of how a position might perform. Sophisticated traders have
> been doing it for years. It did not become something everyone looked at
> though until probably 03-04 range (although I know some that waited longer).
> Sadly, since most of the guys teaching didn't trade then, most don't talk
> about it very much. It is actually an important concept to understand
> though.
>
>
>
> Hope that sheds some light on calendar trading
>
>
>
> Mark
>
>
>
> From: OptionClub@yahoogroups.com [mailto:OptionClub@yahoogroups.com] On
> Behalf Of RobertH
> Sent: Saturday, July 31, 2010 11:51 PM
> To: OptionClub@yahoogroups.com
> Subject: Re: [TheOptionClub.com] XLE Aug-Sep Gorilla Calendar
>
>
>
>
>
> Why does a calendar spread lose money if the option volatility goes down?
> Here is a direct transcript from a webinars hosted by Dan Sheridan and Jim
> Bittman. The example on the screen is the Aug-Sep calendar spread in RTH,
> current price 80.28. August has 32 days left to expiration, and September
> has 60 days left to expiration. The August 80 calls are priced at $2.20 and
> the September 80 calls are priced at $3.20. Their example buys 10 spreads
> making the total investment $1,000.
>
> Jim Bittman: "As expiration approaches, vegas (which is the sensitivity of
> the option to volatility) go down. So, the 60 day option (September in this
> example) has a larger sensitivity to volatility than the August option. So
> if volatility were to drop 5%, then the September option might go down 10
> cents for each volatility point (which would be 50 cents) but the August
> option might only go down 3 cents for each vol point. So there would be a 2
> cent difference for each vol point you are losing." Jim kinda got the math
> wrong here, but I'm sure you get the idea.
>
> In the example on the screen, the vega for the September option is 12.9, and
> the vega for August is 9.44. So they go on to describe what would happen
> with each one point drop in vega. September would go from 3.20 to 3.08, and
> August would go from 2.20 to 2.10. So you lose more in your long position
> than you gain in the short position.
>
> Thought this might help some volatility deprived readers.
>
> RFH
>
> --- In OptionClub@yahoogroups.com <mailto:OptionClub%40yahoogroups.com> ,
> "Mark Sebastian" <mark@> wrote:
> >
> > I know I have said this before but, one of the most common misconceptions
> > about calendars is how they react to changes in IV, and when the best time
> > to enter them is. I will be interested to see how the XLE calendar goes as
> > well, my hope, it's a home run. That said, with Aug vol trading at almost
> > 2% below Sep, I am not in love with the conditions in which you placed
> this
> > time spread.
> >
> >
> >
> > -Mark
> >
> >
> >
> > From: OptionClub@yahoogroups.com <mailto:OptionClub%40yahoogroups.com>
> [mailto:OptionClub@yahoogroups.com <mailto:OptionClub%40yahoogroups.com> ]
> On
> > Behalf Of William Fletcher
> > Sent: Thursday, July 29, 2010 9:09 AM
> > To: optionclub@yahoogroups.com <mailto:optionclub%40yahoogroups.com>
> > Subject: RE: [TheOptionClub.com] XLE Aug-Sep Gorilla Calendar
> >
> >
> >
> >
> >
> > It is of interest to me. I put an XLE calendar on on 7/13. My high
> > breakeven is $55 and it is at $54.31. I have a couple of others like that
> -
> > DIA and OEX - close to or at resistance and waiting for a pullback. My
> > guess is you entered at a better iV, but you are entering about at the end
> > of what I consider my entry window. It will be interesting to see.
> >
> >
> >
> > The beige book is due out today, which may back off the price a bit and
> > raise the iV on my positions to help me out a bit.
> >
> >
> >
> > Keep me posted.
> >
> >
> >
> > Bill
> >
> > _____
> >
> > To: OptionClub@yahoogroups.com <mailto:OptionClub%40yahoogroups.com>
> > From: robhansen5252@
> > Date: Thu, 29 Jul 2010 04:57:22 +0000
> > Subject: [TheOptionClub.com] XLE Aug-Sep Gorilla Calendar
> >
> >
> >
> > Hi. I opened up a "gorrilla calendar" time spread in XLE on Tuesday. I
> know
> > that on occasion, this forum has tracked various options strategies,
> trades
> > and adjustments both theoretically as paper trades and in real time. If
> > there is any interest, I'd be happy to report the particulars of the
> trade,
> > profit goals, adjustments, etc. as they occur. Of course if there are any
> > differing opinions as to how to handle the inevitable scenarios between
> now
> > and August expiration, they can be debated. Could this possibly be a
> > learning experience?
> >
> > RFH
> >
> >
> >
> >
> >
> > _____
> >
> > Hotmail is redefining busy with tools for the New Busy. Get more from your
> > inbox. See how.
> >
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> > WL:en-US:WM_HMP:042010_2>
> >
>
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