Analyzing Calendars

[Hendriks 8]

I don't want to sound like a complete newbie options trader (though I am), but is there a decent resource (book, website, etc..) that gives a good explanation on how to realistically calculate expected returns on calendar spreads, even over just one trading day?  Obviously prices fluctuate and bid/asks go up and down but the theta and vega displayed on ONE or TOS or any options analysis software is wildly optimistic. I realize the limitations of the software dealing with IV on different expirations, but it seems like there should be a roughly accurate way to assess profit and loss.

For example, on a trade entered for $350 debit, on the Thursday before expiry (T-1) I see a theta of 535 and vega of 20.  But even with a slight elevation in IV and the passage of the trading day, the actual P/L number doesn't come close to reflecting those numbers.

Is there a good rule of thumb on what to expect the ACTUAL profit or loss to be?

I find myself holding on to a trade too long because the P/L expectation seems too good to exit the trade early in the day.

[Yowster 9,815]

  On 10/21/2021 at 2:44 PM, Hendriks said:

I don't want to sound like a complete newbie options trader (though I am), but is there a decent resource (book, website, etc..) that gives a good explanation on how to realistically calculate expected returns on calendar spreads, even over just one trading day?  Obviously prices fluctuate and bid/asks go up and down but the theta and vega displayed on ONE or TOS or any options analysis software is wildly optimistic. I realize the limitations of the software dealing with IV on different expirations, but it seems like there should be a roughly accurate way to assess profit and loss.

For example, on a trade entered for $350 debit, on the Thursday before expiry (T-1) I see a theta of 535 and vega of 20.  But even with a slight elevation in IV and the passage of the trading day, the actual P/L number doesn't come close to reflecting those numbers.

Is there a good rule of thumb on what to expect the ACTUAL profit or loss to be?

I find myself holding on to a trade too long because the P/L expectation seems too good to exit the trade early in the day.

You will find that documentation for calendars is for the non-earnings variety, where there is no earnings impact on the IV of either leg.   The SO earnings calendars are different in that the IV changes to both legs can often vary by quite a bit - the best resource for learning the SO-style earnings calendars is in these forums.

[Hendriks 8]

Yes, I'm quite fond of the SO approach because the (hopefully) rising IV into earnings helps the trade along.  And I'm fond of calendars in general. I guess I'm just wondering how you temper your expectations.  It seems like you can count on half of the theta promised in the analyzer and count on a falling IV to double your vega losses.