tastytrade logo
Market MeasuresLow IV Strategies - Calendars | May 16, 2016
Up Next
    Market MeasuresLow IV Strategies - CalendarsMay 16, 2016

    Calendar Spreads are defined risk trades with positive Vega and positive Theta (time decay). We generally place them in environments like the current one (in which implied volatility (IV) is low). Is that the smart thing to do?

    Our rule of thumb for Calendars (low IV strategy), is to look for low IV, low implied volatility rank (IVR) (below 35%), and a relatively flat Volatility Skew between the front month and back month we use. Our study was conducted in SPY (S&P 500 ETF) covering a time period of 2005 to present (2,665 observations). We chose the front month options closest to 45 days to expiration (DTE). We sold the at-the-money (ATM) Put and bought the next monthly expiration ATM Put. We placed these Put Calendar Spreads in all market conditions and also compared those trades to periods where the VIX was below 15. All trades were held until the front month option expired.

    A table of the results comparing Calendar Spreads in all environments and when the VIX was below 15 was displayed. The table included the percentage profitable at expiration, average P/L per trade and biggest loss. A second table examined just the trades when the VIX was below 15. The comparisons were holding the Calendar Spreads to expiration, managing at 25% of the initial debit (or held to expiration), and managed at 50% of debit (or held to expiration).

    For more on Calendar Spreads see:

    Watch this “Market Measures” with Tom Sosnoff and Tony Battista for the important takeaways and our study results on using Calendar Spreads in different volatility environments and managing trades early.

    More like this

    tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com. 

    tastytrade is a trademark/servicemark owned by tastytrade.

    tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

    tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

    Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

    © copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.