[TheOptionClub.com] Something I realized

 

I am fairly new to calendars, and find them very interesting. Like learning to drive on snow.

I was looking for candidates for Feb/March calendars, avoiding Jan & Feb earnings before the front month expires. I came across WMT, and realized something that I haven't seen mentioned, but is interesting for a relative newbie like me.

The spread is around 27 cents. So the commision costs are a big chunk of any profit, particularly if you are targeting 20% profit. The problem appears to be that the IV is so low - at around 16%-17%. So I guess the things to think about, (apart from all the other things to think about) are to make sure that the IV is in the bottom 1/3 - 1/2 of the range for the last 6 months or so to avoid a drop in volatility dropping the price of your long back month. But if the volatility is too low your net DR will be so low that trading commissions will eat your profits.

Does this make sense?

Bill F

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