BABA May 2015 Calendar

[Vancouver 54]

Opened 3-week spreads (long May 29, short May 8). Put 85 @ 0.64 (today), Put 82.5 @ 0.63 (a few days ago).

 

This is cheap compared to the previous cycle when we payed about $1.00 for the 3-week spread, but the stock price was at $100.

So 15% discount in the share price translates to $0.85 per spread.

[Yowster 9,850]

I had opened some of the 1-week 85 call calendars on Friday for 0.24, thinking it could get to at least 0.50 based on the prior couple of cycles (not a big earnings history here).   I thought about using a multi-week calendar, but decided to go with the 1-week primarily because of the SINA trade in March where the dollar increase of the 2-week calendar was exactly the same as the dollar increase of the 6-week calendar.  I did do a smaller allocation because the gain percentage I'm shooting for is much higher.  It will be interesting to see how each plays out.

Edited April 27, 2015 by Yowster

[luxmon 233]

I too did a smaller position in the 1-week 85 put calendar for 0.23 (after seeing Vancouver's note) because of that SINA trade and the benefit of having the long leg in the monthly.  I also entered the official one so we'll see how it goes.

[luxmon 233]

I closed my 85 put and call calendars for 0.30 and 0.31 respectively as I was over allocated in BABA and the stock was moving.  I am also in the official trade with 3-week calendars.  It has potential to go a lot higher especially if the stock moves back to the strike.

 

Seems like this one week performs well as the official spreads haven't really widened yet. Here are my stats:

 

May8/May15 85 put:  Entered for 0.23 on 4/27, exit for 0.30 on 5/4 (26% profit after commissions)

May8/May15 85 call:  Entered for 0.22 on 4/28, exit for 0.31 on 5/4 (36% profit after commissions)

Edited May 4, 2015 by luxmon

[Yowster 9,850]

I'm out of my 1-week 85 call calendars as well since the stock was moving farther away from that strike,  holding onto the 82.5's for now.   Strange thing though - even with the options trading with tight bid/ask spreads of only a few cents the 85's were trading a few cents higher than the 82.5's despite the stock being at $80.60.

Edited May 4, 2015 by Yowster

[4REAL 110]

out of the 85C calendar @ 0.28 (in @ .23) after IB comm (3,17$ per spread)  = 7,95% gain

could have been better, but not complaining

even after 13,80% comm, still 7,95% gain,

Holding onto the 82.50 calendar

Edited May 5, 2015 by 4REAL

[luxmon 233]

Paper is buying the 1-week 80 put calendar today - Tradestation claims 9,945 spreads traded today, that's 90% of the volume on the 80 May8 put.  Wow.  

 

[Optrader 142]

Here is my view on 2 week calendar v/s 6 week calendar  for cheap calendars which range from .15c  to .50c 

 

Disadvantages of 2 week calendar.

1.  commissions eat up a lot of percentage of gains and adds a lot of percentage to loss as well. 

2.  position sizing is difficult with 2 week calendar due to cheap prices.

3.  With 2 week calendar , the entry and exit both have to be executed with high precision down to penny. Every penny counts few percentage.

 

So overall I would say 2 week calendar is for very  highly experience players who  can execute trades with high precision and use the cheapest brokers.

 

6 week calendar is more relaxed approach .

 

There are advantages of 2 week calendars too.

1.  If earnings are not yet announced and there is uncertainity, then 2 week calendar has reduced risk for same number of contracts, not position allocation.

[Yowster 9,850]

Mukundaa - I think your list is pretty accurate with the pro's and con's.  I'd add to the point about position sizing that you typically can use a smaller allocation because your gain% potential is much greater than with higher priced calendars - typically 50% or more.   I know I've posted this checklist before (its been a while), but here is the checklist I use when considering entering a low-cost calendar.  I typically look for all these conditions to be met before opening a trade:

• Options must trade at high IV (low IV doesn't move enough to make a meaningful calendar gain).
• Option bid/ask spreads must be small to allow for close to mid-point pricing.
• Options must have a decent trading volume so as to avoid liquidity concerns.
• Spread entry price must look good historically and show a good chance of at least a 20% gain (the lower the cost of the calendar then the higher gain potential I'd be looking for).

In both trades I've made and those that I've tracked and wish I've made, there are lots of examples of cheap calendars with oversized gains anywhere from 50% to 100%, so they are definitely trades I like to make when all the criteria look good.

Edited May 5, 2015 by Yowster

[Optrader 142]

Hi Yowster for every 50 to 100% gainers

There are some that dont work

E.g in one cycle you mentioned that you played FOSL for 50^ gains

I entered 2 week spread a week ago at .15 thinking its cheap

It never expanded

On top of that due to liquidity only few contracts got executed

Now i am left holding a bag of few contracts which dont make sense to sell as in TOS i have pay transaction cost on partial fills

I had to just leave those contracts for post earnings as cost of closing is higher than value of the contracts

So for TOS users we are at disdvantage

You may argue moving to IB

But i dont want to learn a new platform

My focus is on being profitable rather than become expert on brokers software

[Yowster 9,850]

Hi Yowster for every 50 to 100% gainers

There are some that dont work

E.g in one cycle you mentioned that you played FOSL for 50^ gains

I entered 2 week spread a week ago at .15 thinking its cheap

It never expanded

On top of that due to liquidity only few contracts got executed

Now i am left holding a bag of few contracts which dont make sense to sell as in TOS i have pay transaction cost on partial fills

I had to just leave those contracts for post earnings as cost of closing is higher than value of the contracts

So for TOS users we are at disdvantage

You may argue moving to IB

But i dont want to learn a new platform

My focus is on being profitable rather than become expert on brokers software

Yes, there will be some losers... but by looking at past cycles for attractive entry prices, I am of the opinion that you limit your downside on most of the trades.  I think this is generally true for all the SO calendar trades and not just the lower cost ones.

 

I definitely agree that if you are using a broker that has the transactional fee plus the per contract fee for commissions then you certainly have a bigger hurdle to overcome to be profitable with these lower cost spreads.  But your comment about "your focus is on being profitable" is confusing given all the extra commissions you are paying with the transactional fees to open and close each trade - if you pay the advertised TOS $9.99 plus the 0.75 per contract to open and close each trade then all those $9.99's will add up to quite a significant sum over the course of a year that will certainly eat into your profitability.  With the calendars and straddles/strangles, you are simply constructing option orders to buy some puts/calls and sell others so I don't think you need to be an expert on any broker software to enter these trades.  You may like a given broker's analytics and charts, graphs or whatever - then that's fine, you can keep that account for those things (plus to hold any longer term stock or fund holdings) but you can then use IB for doing your option trades and take advantage of their better commissions and lower margin requirements for our VIX trades.  At the very least, try to leverage moving to another platform to negotiate better rates with your current broker.

Edited May 6, 2015 by Yowster