What is the 'name' for this option trade?

[storchyman]

It is obviously a form of calender spread, but im Im not sure on its proper name?

Sell 1x ATM call - 1 month out
Sell 1x ATM put- 1 month out

Buy 1x ATM call- 2 years out
Buy 1 x ATM put- 2 years out

 

[sails]

synthetically simply a calendar - otherwise you could call it a double calendar or calendar straddle... ??

I don't think the name matters - it's how you manage the it from here. Hopefully IVs don't continue to fall with longs two years out as that could be costly. Also, watch you don't lose too much on slippage being so far out with the longs.

There is technically no reason to have a mixture of puts and calls if you are placing both ATM. If it's a small quantity, you will save on fees...

 

[emilov]

Hey so you are buying and selling a straddle. This trade will be done for a debit obviously (since the bought straddle is so much in the future). But I'm not really sure what it will accomplish. Can you give us a rundown of this strategy? In which cases will you apply it and what would be the end result?

Cheers, Emil

 

[storchyman]

Thanks sails,
I had done this syntheticly with BHP a couple of months back, with the stock in a sideways pattern it payed out nicely.
Slippage on the long is definatly the biggest holdback with this trade.
Once the IV setles down and stays down, the longs should be cheaper to buy into, the money for the shorts also tho.

 

[sails]

Thanks sails,
I had done this syntheticly with BHP a couple of months back, with the stock in a sideways pattern it payed out nicely.
Slippage on the long is definatly the biggest holdback with this trade.
Once the IV setles down and stays down, the longs should be cheaper to buy into, the money for the shorts also tho.

Storchyman, have you considered bringing your longs in a bit closer in time? That way, if IVs continue to come down, you can then roll them further out at a later stage. Falling IV can reduce far out longs to cinders - I have seen it happen! By bringing the longs in closer, it will also reduce the amount of money risked in the trade as calendars can lose a lot .

Because this is synthetically (substitute "synthetically" for "behave the same as") a straight calendar spread, the stock has to remain in a sideways range or come back to this level at some time during the trade for this to make money. Do you have a management plan if a strong move takes the underlying away from your strikes? Like rolling the losing shorts out of trouble... And how to protect the losing longs... etc.

It can be quite a struggle to keep the shorts out of trouble in a strong move. IMO, having a written management plan for all contingencies is essential before the trade goes on. It's harder to think clearly once money is on the line and the position starts to go the wrong way - and especially so in options trading...

 

[rossw]

straddle swap
or straddle spread
usually called stradle swap tho

 

[rossw]

and one went through the market yesterday
WBC dec09 dec10 $20 straddle swap, 150 times

 

[cutz]

Hello again rossw,

Nice pickup,

How do you identify this sort of action, or was it one of yours ?

 

[jackson8]

Hello again rossw,

Nice pickup,

How do you identify this sort of action, or was it one of yours ?

cutz
as an example look at lgl9c ...2009 trade today then lgll57...2010
both trades taken identical time
only variance is the strike and no. of contracts and month

is this the sort of thing you are pertaining to

gary

 

[cutz]

Yeah,

I see what you mean Gary,

I thought ross may have a platform that identifies large spreads placed on the market. Seems like a handy tool to have.

 

[rossw]

Hello again rossw,

Nice pickup,

How do you identify this sort of action, or was it one of yours ?

not mine, no
JP Morgan was on both sides of that (a crossing)

I had access to a text ticker of trades going through the market, for trades in 50 or more