Double Calendar

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Double Calendar

While double calendar spreads can be used in various market conditions, they perform best in low volatility environments. Rising volatility levels help these trades, while sinking volatility levels hurt them.

Because calendar spreads generate profits the fastest at neutral to rising volatility levels, many calendar spread traders will wait until an underlyings volatility levels are either at the lowest level of their average range or at least until they are in the lower end of their average volatility levels before placing a trade.

By waiting for these levels, the calendar spread trader is increasing his or her odds that the volatility levels will either remain where they are and not go much lower which could wind up hurting the position, or begin to rise back up which could put their calendar position into profits quite quickly.

Normally volatility levels sink as the market moves upward and rise as the market moves down. This is why many option traders will place calendar spreads when they have a bearish view on the market.

A popular method for option investors with a bearish outlook is to place a calendar spread slightly below where the market or stock is trading at, with the expectation that as the market or stock does head downward, not only with the underlying move directly into the sweet spot of their calendar position, but the volatility will also rise, super charging their calendar trade into a very good profit.

When using this method with double calendars, it’s possible for the trader to increase their odds even more, as they can set up their double calendar position with a skew that not only creates a sweet spot in the area where the trader believes the underlying will be heading, but also provide profit coverage in a wider area that includes the area where the underlying is currently trading at just in case their belief about market direction turns out to be wrong.

To learn more about trading the double calendar spread for monthly income, click here

A double calendar position can be entered as a double calendar trade from the beginning – or as a single calendar with the plan to add the second half of the position at a later point as the underlying moves in either direction.

Starting a double calendar spread off as a double calendar (two calendar spreads placed at different strikes near each other) creates a nice profit tent that covers quite a good area on the price chart. Many iron condor traders looking to try out other option strategies find this set up familiar – as it somewhat resembles the risk graph of an iron condor trade.

However, once a trader gets comfortable with trading the double calendar spread, many find it preferable to start the position off as a single calendar spread – placed at the money (where the underlying is currently trading at) – then as the underlying moves either up or down they can add the second calendar as both a way to adjust the first position – and complete their double calendar position.

Finally – double calendars traders can add additional calendars to their positions as well – creating a triple calendar and more. This type of position can widen the profit tent even further.

To learn more about trading the double calendar – click here

A great option trade for die hard iron condor traders who are looking to expand their option strategy repertoire is the double calendar spread.

The double calendar is simply two separate calendar spreads (on the same stock or index) placed on either side of where the underlying is trading at. This creates a ‘profit tent’ like structure over a fairly good sized range both above and below where the stock or index current price point is located.

What is nice about the double calendar when compared to the traditional iron condor trade, is that the double calendar spread can be much more forgiving when large fast moves occur. When one looks at the risk graph of the double calendar next to the risk graph of the iron condor – you can see how the 0 day current P&L line remains much flatter over a longer distance than the same line on the risk graph of the iron condor trade.

In addition, rising volatility benefits the calendar trade, actually pumping more profit into the position. So in a situation where the market starts to suddenly move down, what could be a disasterous situation for an iron condor trade could actually be a great situation for a properly set up double calendar position.

To learn more about how to trade the double calendar spread for consistent income click here

This blog is all about the double calendar option trading strategy.