Calendars

[Optrader]

Wanted to see if anyone can clarify a few confusion issues I have regarding calendars and earnings calendars in general.

 

1.  Lets say stock stays the same e.g CMG exactly at 650 for next 5 months. With this picture  will it be beneficial to  start with  sell 1 month , buy 3rd back month calendar and collect the premium of 1st month entirely and then roll to sell the second month ? 

OR

    sell the second month to start with and wait for entire 2 months to drain the 2 month premium ?

 

OR

buy two calendars   1 for  fist and third month and 1 for second/third month ?

 

2.  Its granted that IV  post earnings is going to collapse all the way through next three months , but what about the month after next earnings ? like say march month . Its IV should hold ? for earnings happening in NOV  and next in FEB  ?

This means a calendar of   JAN/MARCH should be profitable post earnings ?

 

 

Thanks

 

[Kim]

Assuming the stock stays near the strike, the first option will produce the best results. If the long options expire after earnings, they will increase before earnings and fall after earnings. The closer the expiration is to earnings, the more it will be impacted. March options will still be impacted by Jan earnings, but less than Feb. options.

[Optrader]

Hi Kim,

 

How about a strategy to establish iron condor on a post earnings monthly. e.g

 

e.g

we know TSLA has earnings in Feb.

The March  250 straddle is implying a move of $44 .

 

We also know that from optionslam the day before earnings. TSLA straddle was trading at $26. Adding 1 month of march of say 4 weeks . We can say that this straddle of March 250  will be trading at price of $28  a decay of almost 30-35% .

 

If we establish a wide Iron condor , we could be in position to collect some decay as this post earnings month is very low gamma trade for now  ?

This could be a safe way to trade ?

 

Do you think that the IV of March which is currently at 44% IV will go up ? from now till say Feb or Jan ?

I dont think so. Even if TSLA makes volatile move before say Jan, the iron condor will not loose much ?

[Optrader]

The good thing is since the IV will never come down, we will never see a 100% loss that a regular iron condor can have as there is no expiry of this iron condor . 

We will close this iron condor around end of jan ?

[Kim]

This needs to be backtested. Still has negative gamma risk.

[Optrader]

I did some backtesting. It is viable strategy, but the holding period is too long to generate meager returns.  There are better strategies out there that can generate much greater returns for long holding periods.

 

That brings another question. 

What is a better strategy for generating lot more returns on long holding periods. 

With our earnings strategies , the holding period is too short. I wanted some trades in my portfolio which I can sit on it for few months with potential to make very large returns say in 2-3 months either before earnings cycle kicks in . 

Like the time between earnings cycle when IV and volatility should be low ? but stock is making big moves e.g AAPL ?