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Double Calendar

Here is a different way to trade the double calendar option trading spread that is worth taking a look at.

Normall, double calendar spreads are initially placed as a double calendar spread. At the start of the trade the one trading the spread will purchase one calendar spread slightly below where the underlying is trading at – and then another calendar spread slightly above where the stock or index product is trading at. This can either be done in two separate trades – or if your options broker allows it, as one trade.

Once the trade is on, as long as the underlying stays between the two ‘profit tents’ you can claim your profit.

However, if the underlying moves too far one way or the other – and rund through your upside or downside break even levels – you will need to adjust the position using one of several different available adjustments.

Another way to place this trade is to simply place just one calendar spread at the money – and then wait to see what the underlying will do. In other words, instead of starting the trade off as a double calendar option position, you would start if off as just a single calendar.

Then, if the underlying moves past the break even levels on either the upside or the downside – you would adjust the position by adding another single calendar spread slightly above or below where the underlying is trading at – creating a double calendar spread. In other words, if the underlying ran up past original single calendar spread upside break even level, we would add another single calendar spread slightly above where the underlying is currently trading at, creating a double calendar. If the underlying moved down past the original single calendar spread downside break even level, we would add another single calendar spread slightly below where the underlying is trading at, creating a double calendar spread.

So rather than starting the position off as a complete double calendar spread, what we are doing with this approach is initiating the trade as a single calendar spread with the plan to turn it into a double calendar spread depending on where the market moves to.

And, if we hit our profit target BEFORE the underlying threatens either side of our original single calendar trade – we simply take the single calendar off and close the trade booking our profits – without ever needing to complete the double calendar trade set up.

Double Calendar – Options

The double calendar strategy now has the ability to provide several new strategies – or perhaps a better way to put it – ‘mutations’ of the original double calendar option trading strategy thanks to the creation of the new weekly options.

In the past the basic double calendar spread was made up of two traditional calendar spreads placed on an underlying either next to one another – or several strikes apart.

Double Calendar – Example

For example – a traditional double calendar spread trade might look like the following example:

Purchase one July Put at the 100 strike.
Sell one May put at the 100 strike.
Purchase one July Call at the 110 strike.
Sell one May Call at the 110 strike.

With the type of double calendar spread set up above, an option income trader would be able to make this type of trade on a particular underlying about 12 times per year – or once per month.

Double Calendar – Weeklys

However, now with the new weekly options – it’s possible to make this type of trade FOUR times per month – or about 48 times per year. And – with the way many of the weekly options are priced – it is also possible to bring in around twice as much in premium – potentially almost doubling the return.

Another benefit of using the weekly options for double calendar spreads vs. the traditional monthly options – is that by ‘mismatching’ options within the double calendar spread – option traders have much more flexibility in adjusting these trades.

For example, in the even where one of the break even sides of a double calendar spread becomes threatened – the option trader now has more options to choose from to make an adjustment – being able to pick from the current weekly which is already being utilized in the trade – to the next week’s weekly – to the current ‘monthly’ option that is available – to an option that has an expiration several months away.

To learn more about the double calendar spread – how to correctly set them up – manage and adjust them – as well as how to utilize the new weekly options in the double calendar spread as well as other option income strategies – join our free option income trading newsletter by clicking here.

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.