Calendar spreads, which are time-based spread strategies, are designed to take advantage of the asymmetry of time.
Because of the asymmetry of the time change of the option, the time-based spread strategy can be used, which is called time spread in English. It has two categories, one is the calendar spread, which is called calendar spread in English; The other is a diagonal spread, called a diagonal spread in English.
We're talking about a calendar spread today, trading different option months, but the strike contract is the same. The diagonal spread is more complex, consisting of different strike prices and different month contracts.
Let's start by looking at how calendar spreads are structured.
There are two types of strategy grouping: sell near month + buy far month, or buy near month + sell far month. Today, I will mainly talk about a more practical one: that is, sell the near month + buy the far month. Take 50 ETF options as an example, let's say the near month is November, and now you go to sell 32. The put option of 2, received a premium, and then went to buy 12 months, and also chose 32. Put options. One sells and one buys, different months, this is making a calendar spread.
What are the features of this strategy?
First, the risk is limited。Its losses are locked, let's take an example, you sell 32. Put option + buy 32 puts, different months. When ** falls to 31, near month 32 down to 31 You feel lost, but the far month 32 to 31 is earned, and the loss in the direction is made up. That's probably 33. It is also not a loss, it is still the same from the perspective of intrinsic value, one profit and one loss. The only difference is that the premium is different, so its maximum loss is locked in when you lay it out.
For example, I sold for 200 yuan in the past month, and spent 1000 yuan for the next month, collected 200, paid 1000, and paid a total of 800, that is, your maximum loss is this 800. Your layout is your biggest loss in the moment, so this is a strategy with limited losses.
Second, the direction is neutral. As shown in the figure below, the profit range is in the middle of the target, I hope that the ** will not fluctuate too much, and it is best to settle the final settlement in the exercise price of the layout in the near month, so as to achieve the maximum profit.
Third, it is affected by implied volatilityIn the best case, the time is lost in the near month, and when the loss is about the same, the implied volatility of the next month does not fall, or even to **, then more profits can be realized.
Why is this strategy profitable? The core is that the time value of the near month and the far month decay at different rates, and to borrow the idea of relativity, time is not constant.
The 50 ETF in November and the 50 ETF in December are in different spaces and gravity environments, so the time value of each of their squares is different. The near moon decays more quickly, while the far moon decays more slowly. It is because we take advantage of this feature that this strategy can be profitable. Just like some stock index or ETF options are about to expire recently, then I want to sell, because it has not moved recently, and I may be able to make money by selling, but in case it suddenly moves, we have to do a little protection, and buying the far month in the calendar spread is a kind of protection.
For example, 300 ETF options, you sell the near month 48, and then buy a 4 the next month8。It's like doing a protection. Slowly near the month 48. When the premium is exhausted, the far month will also lose a little, but you have to be careful of the change in implied volatility. When the near month is about to expire, the implied volatility change has little impact, mainly because the direction is more dangerous, but the next month is greatly affected by the implied volatility, once it falls sharply, it may lose much faster than you think.
At present, the implied volatility of financial options is low, and you want to harvest the last time value when ** does not have much performance, which is a method. So you can try this strategy, which is available in theoretical books, but there are not many people who are willing to operate it in practice. Especially seeing your two parts, one makes a lot of money and the other doesn't lose much, it will make you understand options better, and it will be deep and interesting.