Strategies · Library · Options
§2.19Volatility
Calendar put spread
Sell a short-dated put and buy a longer-dated put at the same strike. Profit is greatest if the stock sits at the strike when the near put expires.
- Asset class
- Options
- Held for
- Varies
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Neutral to mildly bearish; wants the price pinned near the strike and implied volatility to rise or hold.
- Entry and exit
- Buy a longer-expiry near-the-money put, sell a nearer-expiry put at the same strike. When the short put expires near the strike, sell another short put; exit if the stock rises above a stop price.
- Sizing
- 1:1 (one long far-dated put, one short near-dated put)
How it fails
- Maximum loss is the net debit
- Best result only when the stock ends close to the strike at the short expiry
- A large move either way reduces the spread's value
- Falling implied volatility and assignment risk
Data it needs
- options chain with strikes and premiums
- implied volatility by strike and expiry
- underlying daily price
ARCANE has the underlying daily close but no options chains, strikes or implied volatilities
How ARCANE uses it
Matches a Call that a price ends near but slightly under a level at a near date. Paper only.
Two-expiry put structure is not buildable.
Filed under the volatility card
Hold less after a month of high volatility and more after a calm one. The paper found this raised return per unit of risk, because volatile spells are not paid for with higher returns.
A paper plan from this card holds 5 to 63 days, stops at 2.5× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §2.19, p. 25 of the SSRN version. Described in our words. Volatility is ARCANE’s filing, not the book’s.