Awesome Christopher. You know, I’ve asked several people, including the trade desk at TOS, and no one could/would just give me a straightforward answer on this about that graph as you have here.
Thank you!
JimR
From: OptionClub@yahoogro
Sent: Sunday, January 03, 2010 5:16 PM
To: OptionClub@yahoogro
Subject: [TheOptionClub.
Jim,
The peak of the calendar on your risk graph reflects anticiapted profit, inclusive of your debit. If it's above the zero line, you're making money.
One caveat about risk graphs on calendar spreads. They are vega sensitive. What that means is that they will expand and contract with changes in implied volatility. When you look at risk graphs for calendars it is helpful to also change the IV levels up and down to see what happens should implied volatility rise to prior highs or fall to prior lows.
Christopher Smith
TheOptionClub.
--- In OptionClub@yahoogro
>
> Hi all,
>
> Just joined and glad to see the high-level discussions here. I'm at that stage of doing Options for awhile that I seem to be going backwards now and confusing myself. Been at it about 1.5 years.
>
> Here's my question, and it's pretty basic:
> I'm looking at calendar spreads on the SPY (just for example) and I can't find any that make sense. I'm on TOS. Looking at the risk graph, it looks like my debit is more than the peak of the graph, and that's asssuming I'm totally psychic and nail the price point exactly. (obviously not going to happen)
>
> Am I reading this wrong? Take a look at any calendar, put or call, any strike and the debit is higher than the peak of the risk profile graph.
> I realize you only want to use the right tool for the situation, but this makes it look like a calendar would never even recover . What am I missing?
> Is it just that the IV is too low or too high on the SPY?
>
> Thanks, (I'm studying calendars)
> Jim
>
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