Finding and Trading Calendar Spreads

  1. Find front month ATM option with positive skew >= 2%. Implied volatility should be sold should be greater than vol bought.
  2. There should be no earnings close to expiration causing a positive skew.
  3. Volatility in current period should be in the lower 1/3 range over last 6 month period.
  4. Look for an underlying following a channel technical formation.
  5. P/L targets: 20% gain and 25% loss (calculated on margin).
  6. Adjustment occurs at the B/E points. Take off half position and add ATM calendar to widen the spread.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: