Double Calendars

To increase your probability of success for a longer duration you can increase the width of your profit window by deploying a double calendar spread.  This is similar to an iron condor but with spikes on the end for greater profit, sort of like a double tent.  A double calendar contains a calendar spread on the call and the put side. The profit potential in the middle of the profit window gets smaller as you increase the distance between the strikes on the call and put side.

Again only deploy calendars when there is low volatility and look to exit the trade earlier rather than later.

Probabilities of Calendar Spreads

When looking at calendar spreads you still have to take into account the probabilities.  A regular calendar spread has a low probability of success and the curve is not wide enough to keep the trade on for any extended length of time. This is why you have to exit the trade early say within 3-4 days because you mitigate the inherent low probability by not holding on to the trade for long. Shorter time frames increase your probability of directional success.

Updated Trading Strategy

Here is my updated trading strategy:

• Trade high volume, high price stocks
• Look for the stock to be around the middle of its 52 week trading range
• High IV rank of 30% or better preferably 50% on up
• 90% probability of success and at least 1-2 standard deviations away
• Between 7 and 35 days left till expiration
• Leg into an iron condor with vertical spreads
• Collect at least .70 for each trade 
• Look to close each side at .15 one week later but no longer than 2 weeks later
• When the stock moves big one way look to close the winning side for a profit and re-deploy another iron condor
• Always stay at 90% probability OTM (out of the money) when you place your trade
• Never trade this strategy during earnings – use a different strategy 
• Use Person’s Pivots (PPS) to time entry
   

*Cash management

Leave $2000 available for options trading so you can fix any situations that go against you or jump on opportunities that may arise

ETFs Versus Individual Stocks

After analyzing my past trades alongside the S&P and their corresponding ETFs I have come to conclusion that from here on out I will be trading the ETFs.  Although AAPL has the highest return I could have made a comparable return by trading the highly liquid ETFs that have similar or higher premium.

I can also use other contrarian ETFs to hedge my trade and make my overall portfolio delta neutral.  

 

SPY, YHOO, AAPL 52 week comparison

 

QQQ, SPY, YHOO, AAPL 52 week comparison

 

Facebook Earnings Play

I just figured out why my Facebook trade is not working out as quickly as I wanted it to. I got into a put spread with the wrong expiration date.

I have a bull put spread with the 72 strike and 67 strike expiring the last week of January.  Facebook is announcing earnings at the end of that week.

I wanted to take advantage of volatility during earnings  but I did the wrong thing.  I should have sold my put spread a week before earnings and not the week of earnings.   This would allow the volatility and time decay of earnings week to eat up the premium  faster.

By selling the put spread during the week of expiration  I exposed myself to the volatility of expiration week.   As it looks now I may have to wait till the week of expiration to exit my trade for a profit.