Monday, October 5, 2009

Calendar Strangle




This is an illustration of a Calendar strangle trade made in Feb 2008 2 days before earnings and closed immediately after earning was released.

Even though the price went against the direction of the trade, it ended making money.

Calendar

o LC and LP at different months
o Reduce cost in trade
o Hedged directional for the short term ( protection if wrong direction )
o Place 14 –20 days before earnings or important event
o VIX should be reasonably low
o Choose stocks that move violently with earnings ( RIMM, FSLR,etc )

If bullish:

- Buy short term call
- Buy Long term Put

If bearish:

- Buy Long term call
- Buy short term put


Feb 11th 2008

o Trend was going bearish. So structured trade aligning with the trend
o Earnings coming in 2 days
o Structure a Calendar strangle for a downside

- Short term put
- Long term call

BTO Jun 180 Call at $37.6
BTO Mar 175 put at $22

( If I am bullish, I would have structured a Longer term put and short term call )


Feb 13th 2008

Results was out in 2 days and trend went AGAINST the trade

o STC Jun 180 Call at 68.4
o STC March 175 put at 8

Gains on call : 68.4- 37.6 = 30.8
Loss on put : 22 – 8 = 14

Despite guessing WRONG on the trend, there was a profit of 30.8-14 = 16.8
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About Me

An engineer by training graduated with B.Sc (hons) and MBA from Strathclyde university in Glasgow, Scotland. Started as an engineer in R&D for 3 years with Philips. Then, worked with DuPont for 13 years. Last job was VP, Marketing for Asia Pacific. Left to start a number of companies in various segments which include a large electronic distribution, a VoIP provider, an internet trading portal in Australia,and an executive training consultancy firm. Have listed companies in NYSE, Australia Stock Exchange, Singapore Stock Exchange Main Board. I was on the Board of Directors for 1 company listed in Thailand, 1 in Singapore and 1 in Australia. Was in the senior management of a company listed in NYSE. Still holding major share positions in the VoIP and Executive training companies. Both are private companies.

Disclaimer

These articles merely reflect the opinions of this author and are by no means a guarantee of future economic conditions, market or stock performance. Though the author strives to provide accurate and relevant data, he sometimes relies on external sources and cannot assure the reader of the accuracy of these external sources. Additionally, these articles are provided for INFORMATIONAL PURPOSES ONLY and are NOT MEANT to provide investment advice to anyone. For investment advice, please consult your professional adviser.