Double calendar
This is an options trading strategy which is a favorite advanced strategy used by market professionals. It involve minimal risk and can be managed in such a way that even potentially losing positions can be turned into profitable ones.
Advantages of the Double Calendar Spread
The double calendar spread is like a short straddle or strangle strategy, but with additional positions added. These additional positions are long options and with a later month expiration date, on either side.
Since the later month long positions will cost more than the earlier month short positions, the spread will incur a net debit to your account. This debit will also be the maximum risk for this strategy.
Most brokers will allow you to enter all 4 positions as one trade, rather than legging into them. But if you must leg into the trade, do one calendar spread first and then the next one.
Double Calendar Spread - Criteria for Entry
You should also look at the options implied volatility for both the near month and later month options. The best trades are made when you see a "volatility skew". These occur when the near month options have a higher implied volatility than the later month options. Since you want to sell the near month options, you would like to receive as much as possible and this is why you look for these skews.
If the longer dated options have a higher implied volatility than the shorter dates ones, stay out of the trade.
The best part of this strategy is that because you are on the selling end of options contracts, you have 'theta' or 'time decay' working in your favor. Maximum profits are achieved when your near month options both expire worthless because 'at-the-money' while your long dated options still have enough time value to close the whole position for a profit.
This is an options trading strategy which is a favorite advanced strategy used by market professionals. It involve minimal risk and can be managed in such a way that even potentially losing positions can be turned into profitable ones.
Advantages of the Double Calendar Spread
The double calendar spread is like a short straddle or strangle strategy, but with additional positions added. These additional positions are long options and with a later month expiration date, on either side.
Since the later month long positions will cost more than the earlier month short positions, the spread will incur a net debit to your account. This debit will also be the maximum risk for this strategy.
Most brokers will allow you to enter all 4 positions as one trade, rather than legging into them. But if you must leg into the trade, do one calendar spread first and then the next one.
Double Calendar Spread - Criteria for Entry
You should also look at the options implied volatility for both the near month and later month options. The best trades are made when you see a "volatility skew". These occur when the near month options have a higher implied volatility than the later month options. Since you want to sell the near month options, you would like to receive as much as possible and this is why you look for these skews.
If the longer dated options have a higher implied volatility than the shorter dates ones, stay out of the trade.
The best part of this strategy is that because you are on the selling end of options contracts, you have 'theta' or 'time decay' working in your favor. Maximum profits are achieved when your near month options both expire worthless because 'at-the-money' while your long dated options still have enough time value to close the whole position for a profit.
