Double Calendar - New Sport For Iron Condor Traders
A superb option trade for iron condor investors which are searching to grow their option tactic collection is the double calendar spread.
What is a double calendar spread?
The double calendar is simply several independent calendar spreads put on the same stock or index, most often situated on both sides of where the underlying is currently trading at.
What exactly is a calendar spread?
A calendar spread is the sale of a front month option at a specified strike and the purchase of a further out month option at the same particular same strike.
Immediately below find an example of a calendar spread on an underlying we will name XYZ.
Sell 1 April 20 Put Buy 1 May 20 Put
The way this spread generates profits is from the variances which will arise in the volatility stages of the 2 different strike options, as well as from the fact that the front month option will without a doubt decay at a swifter rate than the deeper further out month option.
A lone calendar spread can make a considerably skinny profit tent on the risk graph. However, when two calendar spreads are put on either side of where the underlying is buying and selling at, setting up a double calendar spread the profit tent widens out greatly, overlaying a larger sized range both above and beneath where the stock or index is currently located.
Following is an illustration of a double calendar spread with XYZ trading at 30.
Sell 1 June 25 Put Buy 1 July 25 Put Sell 1 June 35 Call Buy 1 July 35 Call
A benefit of the double calendar spread when put up against other option income strategies such as the iron condor trade or the credit spread strategy, is the reality that the double calendar spread can handle big violent moves in the stock market much better than other option trades. When one looks at the risk graph of the double calendar trade and then looks at risk graph of a similar iron condor trade, it is very apparent that the double calendar can withstand a quick big move with less pain then if the same move were to occur to an iron condor trade.
Moreover, growing volatility levels are an advantage to the calendar trade, generating more profit into the position. As a result, in a situation where the market will start to suddenly move, either up or down, what could become a calamitous predicament for an iron condor trade could potentially prove to be good situation for a adequately set up double calendar position.
Article Source: FxTradingStock.com
About the Author
To learn more about the Double Calendar spread visit Ted Ninos website at: http://www.doublecalendar.com
by: Ten Nino
Total views: 73
Word Count: 441
Date: Tue, 8 Jun 2010
Publish/Share this article
To use this article on your site click here to get the HTML code
Rating: Not yet rated
Login to vote
Related Articles
How to Invest in 2011 and Beyond Without a ClueWhat Is Forex Trading?
Quick Way To Trade In Shares
ATM Calendar Spreads, Are You Aware Of The Hidden Gotchas?
Emini Day Trading Requirements
The Coming Death Of The Dollar
Fantastic Fundraising Suggestions
Winning Big In The Share Market
