A superb option trade for iron condor investors which are searching to grow their option tactic collection is the Weekly Options double calendar spread.
What is the Weekly Options Double Calendar Spread?
It’s basically just two separate calendar spreads placed on the same underlying, usually situated on either side of where the stock or index is presently trading at.
What are calendar spreads?
A calendar spread is the sale of a front month option at a exact strike and the purchasing of a further out month option at the exact same particular option strike.
Here is an example:
Sell 1 June 30 Call Buy 1 July 30 Call
The above spread generates profits through variations in the volatility levels of the 2 distinct options, as well as from the fact that the front month option value will decay at a much quicker pace than the deeper out month option.
A calendar spread creates a rather narrow profit tent over the current price of the underlying, while two calendar spreads (a double calendar spread) creates a profit tent that is quite a bit wider and protects a larger area around the underlying current price. This is one reason why iron condor traders find these trades attractive.
Here is an example of a double calendar:
Sell 1 June 25 Put Buy 1 July 25 Put Sell 1 June 35 Call Buy 1 July 35 Call
A cool thing about the double calendar when compared to the traditional iron condor trade, is the fact that the double calendar spread will be significantly more flexible when large rapid movements occur in the stock market. If you were to view the risk graph of the double calendar spread right next to the risk graph of the iron condor spread, you would see how the 0 day active P&L line holds up much better over an extended range than the similar line on the risk graph of the iron condor trade.
Finally, rising volatility is a good thing for calendar trades, because it will push more profits into the trade. Where an Iron Condor can be hurt by rising volatility levels – and even wind up creating a trading disaster – because of how calendar trades work – the same type of move can create a profit windfall in a Weekly Options double calendar trade.
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