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?
It’s basically just two separate calendar spreads placed on the same underlying, usually situated on either side of where the stock or index is presently trading at.
What are calendar spreads?
A calendar spread is the sale of a front month option at a exact strike and the purchasing of a further out month option at the exact same particular option strike.
Following is a sample of a calendar spread on an underlying we will call XYZ.
Sell 1 June 30 Call Buy 1 July 30 Call
Calendar spreads produce income from the reality that the closer month option value loses value at a faster rate than the farther out month option.
A single calendar spread produces a somewhat skinny, profit tent over where the underlying is currently trading at. Nevertheless, when two calendar spreads are used on each side of where the underlying is ticking at, it creates a double calendar. The profit tent on this trade is drastically wider, protecting a larger sized range over the stock / index current trading price.
Here is an example of a double calendar:
Sell 1 May 15 Put Buy 1 May 15 Put Sell 1 May 25 Call Buy 1 June 25 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.
Furthermore, soaring volatility rewards the calendar trade, basically pumping further gain into the position. So in a situation wherever the market suddenly tanks and moves downward, what might be a disastrous scenario for an iron condor trade could turn out to be a great circumstance for a correctly setup double calendar position.
To learn more about the Double Calendar spread visit Ted Ninos website at: http://www.doublecalendar.com
Tags: calendar spread, double calendar, double calendar spread, doublecalendar, investing, iron condor