Closed: ODAX Oct - Dec PUT Calendar Spread

Summary

The first real Calendar Spread has not worked out and I have closed it today at a loss. The drop in the DAX index has been too strong in order to be compensated with an increment in the Volatility and the time decay of the sold option.

DAX 30 on October 9th 2018. Source Investing

Therefore, as it pretty much happened last year, I am back to square 0 with only three months remaining this year.

New Position: ODAX Oct - Dec PUT Calendar Spread

Summary

As the DAX 30 is climbing again back to the mid 12.400s while the Implicit Volatility has dropped all the way from 18% to 13% since the beginning of the month, I have decided to open a October - December 12450 Put Calendar Spread.

DAX 30 on September 21st 2018. Source Investing

If you remember, when Calendar Spreads were discussed, this trade involves selling a front-month option and buying another one at the same strike but further in the future.

The idea behind this trade, is to do it when Volatility drops and expect a return of the Volatility to its mean value. If that happens, the Option that we own far in the future will gain more value that the value lost by the Option being sold in the front month.

If by the end of the month, I have not achieved that increase in volatility, I will roll the short option into November in order to recover as much premium as possible, from the original debt paid.

Calendar Spreads using Put Options

Summary

As I am not too happy with the results, I have not deployed any Iron Condor lately. Nor I have had the chance of deploying a Put Spread, which is a trade that I am much happier with.

In the meantime I have been reading about Calendar Spreads and done a bit of paper trading with them. Today I would like to share my thoughts on them.

Note: This is not meant to be a proper study on Calendar Spreads, just some notes I have compiled on the way. Any serious study on a trading strategy requires a proper set of back tests.

Example Trade Setup: Positions opened, days until expiration (DTE) and debit invested

The calendar spread is composed of two positions (in this example PUT options for the German DAX30 - ODAX):

• Same strike price: 12500 points in this case.
• Different lifespan: A shorter one, using the front month (32 days) and longer in the other, some three or four months in the future (158 days).
• Short/long: You sell the front option and buy the option in the future.

As the option in the future has more time value, this results in an overall debit.

For instance, this is the current status of a "paper trade" that I have simulated for a couple of weeks:

Type	Name	DTE	Delta	Theta	Vega	Debit/Credit
Long Put	December 12500	158	-43,58	1,62	31,82€	-390€
Short Put	August 12500	32	35	-3,68	11,83	90€

Results in this profit/loss graph:

The orange line is the profit/loss at the expiration date of the short option, while the blue line is displaying the profit/loss 9 days after opening the trade. Note that the amounts are all multiplied by 5 here as each ODAX option represents 5 contracts (or 5€ per point).