I had few questions about the Calendar spread and its robustness.
By default, The design of Calendar or Diagonal are not robust enough to trade all months. Because of few factors…
1/n
By default, The design of Calendar or Diagonal are not robust enough to trade all months. Because of few factors…
1/n
Cons.
1. Too much Vega positive.
2. Option Modelling software will not plot Calendar profile properly.
3. Gamma effect.
2/n
1. Too much Vega positive.
2. Option Modelling software will not plot Calendar profile properly.
3. Gamma effect.
2/n
Let me address, how I fixed those Cons to make it work as All-rounder profile.
1.Too much Vega positive.
This is really good on falling market but not certainly for Raising market. The Positive Vega calendar spread will blead on bullish market.
3/n
1.Too much Vega positive.
This is really good on falling market but not certainly for Raising market. The Positive Vega calendar spread will blead on bullish market.
3/n
If you look @ the market ~75% of time market is range bound and slightly bullish. So, the positive Vega will kill the trade for sure (least profit).
4/n
4/n
To fix the Vega to neutral or Zero, we have to short extra contract on current month. For example, 11500 CE 3 lot short OCT, and 11500 CE 2 lot long NOV. this will reduce the positive Vega significantly.
5/n
5/n
2.Trade the Monthly contract so that Gamma effect will not be an issue.
3.Option Modelling software – Opstra and Option oracles are fine but it comes its own advantage and disadvantages.
6/6
3.Option Modelling software – Opstra and Option oracles are fine but it comes its own advantage and disadvantages.
6/6
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