Double Calendars

[Guest]

Anyone here looked into double calendar spreads very much?

It occurs to me if an earnings play is too "expensive" then, by definition, that means we think the IV premium is over stated. If that's true, then each time a double calendar should be profitable.

I've done no research on this, but it stands to reason. Any thoughts?

[Guest]

Very interested in this

[Guest]

Okay, we will do some. But please be aware that those fall under the "speculative trades" category, like post-earnings ICs. In case of a large move, the loss will be substantial.

Im curious if the losses would be more than that in a post-earnings IC -- that seems pretty unlikely. But should look at both (inclusive of commissions)

[Guest]

What is a double calendar spread?

[Guest]

Anyone here looked into double calendar spreads very much?

It occurs to me if an earnings play is too "expensive" then, by definition, that means we think the IV premium is over stated. If that's true, then each time a double calendar should be profitable.

I've done no research on this, but it stands to reason. Any thoughts?

Chris,

Are you talking about holding this through earnings?

Doesn't this fall into the category of "profiting from IV collapse"? Since we don't want to sell a straddle going into earnings and be naked on short positions and ICs often don't work because the OTM strikes are typicall not liquid on most stocks we are looking for another way to play this? I had backtested using a calendar straddle on GOOG and AAPL. That is sell a near month straddle and long an out month straddle. The results were around breakeven without commissions however there were some huge losses, so I was not comfortable with the trade.

Is this what you are thinking?

[Guest]

GOOG is definitely not a good candidate. It is one of the exceptions where the options are actually underpriced on average - http://seekingalpha....-the-risk-again.

For AAPL, how much back did you go? Last 2 cycles the move was bigger than expected, but going back I think you will have better results.

Sorry Kim I could not find my old records, but I believe you are correct.

One point that Jeff Augen makes is that the OPEN after an earnings announcement can be very different then the closing price. So some of these trades may look good or bad based on the closing price, when I'd really want to evaluated the open.

I never backtested double calendars. I just want to confirm. We are talking about initiating a double calendar some # of days prior to the earnings announcement and then holding through earnings correct?

[Guest]

I think that's the idea. Seems like you'd want to do it right at the IV peak which I would guess is normally the last trading day before earnings. That would also allow you to place both sides of the calendar in the appropriate spot.

[Guest]

I'm very interested in looking into this more. Since starting to follow Kim's pre-earnings trades, I have felt that playing the IV drop at earnings should be more predictable and profitable, if setup properly. Shorter holding time, and the ability to use the pre-earnings IV rise as a predictor of the post-earnings IV drop. But I've had trouble finding a trade that has limited loss potential and is resilient to large stock movements. I still have some more learning to do on single calendars, but let's keep studying doubles.

I have also thought about the straddle calendars mentioned above, but Kim, in a Seeking Alpha thread, commented "what's the point?". Wouldn't a straddle calendar be more nuetral to movement in the underlying but still capture time value?