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Time/Calendar Spreads
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JimDean
Posted 8/2/2010 12:13 PM (#607)
Subject: Time/Calendar Spreads



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I'm sure there will be a LOT of discussion about this topic, so here's a thread for it!

If you'd like to discuss other options methods (aka strategies) besides Time/Calendar Spreads, please start up a new Thread for it.

Thanks!
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RobKidwell
Posted 8/2/2010 1:41 PM (#610 - in reply to #607)
Subject: Calendar Spreads


When I beta tested for the Options Module I wrote extensively as to why time spreads were preferable over vertical spreads. I found that the Target Tool pretty much proved this as time spreads rose to the top (R.R. and % Gain) most of the time (assuming that you didn't place the Target at a place that was not particularly reasonable). Further, the time spreads are more adaptable. If your position becomes stressed, there are adjustment methods that will morph the position.

I will try to post some of this logic in this forum from time-to-time. Suffice it to say that options topics can seem infinite if you don't adopt a few basic tenets:
1. Sell options that will lose value quickly (front month)
2. Buy options that will lose value slowly (serial or serial + 1,2,3 etc)
3. Only trade liquid underlyings (think slippage). I suggest that you start with the indices like SPY and XEO. The open interest should be measured in the thousands on the ATM (at the money) options. This means that running T3 or NSP on the Russell 2000 for your options trading candidates may not be the best idea. Most of these stocks are "optionable," but only a few are "liquid optionable."
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KeithMcIntyre
Posted 8/2/2010 1:43 PM (#606 - in reply to #607)
Subject: Time/Calendar Spreads


Thanks for the info. TOS is a great (powerful) platform. IB has better commission and fills IMO.

What did you mean by "serial + 1,2,3..."?

What do you think about using N's OptionTrader for paper trading on historical (calculated) pricing?

I can't seem to pick market direction on stocks or indexes correctly. Consequently buying calls and puts has lead to more losses than I wish to confess. I've lost even more selling time with Iron Condors. I've heard that options allow one to make money regardless of market direction. My experience is that options allow one to lose money regardless of market direction! :-)

So I should look at calendar spreads?

Thanks!

Keith


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JimDean
Posted 8/2/2010 1:46 PM (#611 - in reply to #607)
Subject: Time/Calendar Spreads



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Posts: 3925
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Location:
USA: GA, Lawrenceville
I moved the relevant portion of Rob's post and also Keith's reply, to this more appropriate thread.

Please keep threads on-topic ... and please pick Topics that are specific.

Please to start NEW threads when you want to pursue a rabbit trail ... that way I won't have to horse around with moving things.

It's a simple but important learning curve ... if we don't honor it, then this forum will be just as mixed-up as the Nirvana forums are.

THANKS for your cooperation in this.
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RobKidwell
Posted 8/2/2010 2:33 PM (#613 - in reply to #606)
Subject: Free General Options Training Resources


There is now a Calendar spread thread so I will limit my reply to the IB vs. TorS.

First, my experience does not validate the "better fills" comment. I don't believe that IB allows for easily provisioned spread pricing at or better than the mid price. The Mid price is the half way point between bid and ask and Thinkorswim allows for one to try to achieve the best possible pricing by initially pricing at the Mid for spread trades. If IB does allow for the trader to put in spread pricing rather than pricing each leg individually, then there is nothing that should differentiate IB from TorS when it comes to fills. In other words, the exchanges don't give IB priority over TorS.

Second, as far as the commissions are concerned: You get what you pay for. IB offers very little in terms of analysis of complex positions. Although I know that many people want the cheapest commission, I believe that the tools that I have with TorS save me money over time. Also, when you are making money with options your sensitivity about commissions tends to be lessened. Trading methodology and trading errors are what count as compared with commissions. Slippage is a big factor which is why I limit myself to trading the most liquid entities (underlyings) out there. SPY, XEO, SKF, GLD, AAPL, GOOG, RIMM, AMZN. That is my short list of things that I trade. There are others, but not necessarily a lot of others. I would be hard pressed to come up with 50 underlyings that I could trade as slippage becomes too costly (rather than commission).

As far as Serial, +1,2,3 and Front month. Right now August is the front month with 18 days to expirations. That makes September the Serial month, Oct the Serial +1 and Nov the Serial +2. Sorry about the lingo...

It would appear from you comments about market direction and buying puts and calls that you are ripe to discover the world of spread trading. You will find many people who trade Condors and Butterflies which are commonly called "verticals." I am a fan of Calendars and Diagonals or "time spreads." The general idea is that you aren't really picking direction so much as high probability zones where price is likely to range over a given period.

I will defer further discussion for the Calendar spread thread.....
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