Merry Christmas and Happy Holidays!
It’s the time of the year again! Most traders are on their way to spend Christmas with their loved ones and that explains the recent choppy and indecisive market condition. This indecisiveness of the market will continue at least until after Christmas or maybe even after the new year when most traders will start streaming back into the market. During this time, we should expect low volume movements in the market. Without institution money movement in the market, it is difficult to identify a strong market trend. This is a good time for our time value to decay away. That was the main reason we enter a few new iron condors in the past few days even though the credit is not fantastic.
IV remains low, which explains the low credits for our condors. But low IV is fantastic for calendars. I’ve been talking about calendars in low IV environment. I’d like to share with you two calendars that I recently put up. These two calendar spreads are not part of the advisory service. It is merely a “show and learn†exercise. I have no idea if these trades will make money. So please don’t put up these trades to risk you capital.
14 Dec: Buy SPY Feb 144 Put/Sell SPY Jan 144 Put for $0.65 debit.
14 Dec: Buy SPY Feb 142 Put/ Sell SPY Jan 142 Put for $0.75 debit.
This double calendar will have one chance to roll. When I decided to roll these calendars, I would have to close up the positions (I’ll be buying in the Jan Puts and selling the Feb Puts).
For those of you who may not be familiar with how calendars work, this is a short description. Calendars work because the option we sold when we enter the trade will decay at a faster rate than the ones we bought. For example, let’s say SPY expires in Jan at a price of 142. My short Jan 142 Put will have zero time value but my Feb 142 Put will have some time value left. I can then buy back my Jan 142 Put and sell my Feb 142 Put, which should be worth more than the Jan Put.
This sounds too simple for my own liking. Of course, this is the main idea. But there are other things to look out for when you put up a calendar spread. There are two main ways to kill calendars: underlying moves too far from your strike and a drop in implied volatility. That is why we only put up calendars when IV is really low. I’ll update on this double calendar in this blog every week. We shall see if these calendars work out.
Happy holidays!
Gary
