A good ETF Trend Trading option trade for iron condor traders who are seeking to build up their option trading repertoire is the Double Calendar spread.

What is the Double Calendar Spread?

The double calendar is simply two separate calendar spreads located on the same stock or index, usually placed on either side of wherever the underlying is presently trading at.

What are calendar spreads?

A calendar spread is the sale of a front month option at a specified strike and the purchase of a further out month option at the same particular same strike. Each ETF trading principle is critical to follow. These ETF Trend Trading reviews will allow you to make sound buying decisions about any ETF index.

Here is an example:

Sell 1 April 20 Put Buy 1 May 20 Put

The way this spread generates profits is from the variances which will arise in the volatility stages of the 2 different strike options, as well as from the fact that the front month option will without a doubt decay at a swifter rate than the deeper further 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.

Following is a sample of a double calendar spread with XYZ trading at 30.

Sell 1 June 25 Put Buy 1 July 25 Put Sell 1 June 35 Call Buy 1 July 35 Call

The thing that's nice with the double calendar when compared to other option income trades such as the iron condor trade, is that the double calendar spread could be substantially more forgiving when sizeable market moves take place. If you compare the risk graph of the double calendar next to the risk graph of the iron condor, you can see that the current P&L line stays much smoother over a longer area than the risk graph of a similar 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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