Ok last one for the day....
A fellow trader brought up that UPS was in a solid channel between 65 and 75. So some of us tossed around the ideas of doing either a single call calendar at 70, a double calendar at 65 and 75, or a triple at 65, 70 & 75.
Of the 3, the analysis of the triple was the best because you get the best of both worlds. You get a breakeven spread that's still further out than the single. And you make money faster because now instead of 2 profit peaks on the analysis tab you get three. With the double, you get the 2 peaks, but a huge dip in the middle which means 0 profit initially-you'd have to ride this one out for while before you start making money.
Notice all 3 analysis charts and you'll see the difference. The green line represents the option while the white is the stock. The vertical axis defines your profit in $ while the horizontal represents the stock price.
The Single Calendar:
Notice how you only get one place where you profit the most, which is right at the center at 70. Also, the probability of this stock hitting this sweet profit spot is less than the other 2 strategies.
The Double Calendar:
So, even though you get higher probability here than with the single, you have the huge dip in the middle of the 2 peaks which means you don't profit upon entry (notice the red dotted line in the middle-this is the "mark" or where the stock currently is compared to this trade). You have to wait a while or the stock has to move in one direction or the other for you to profit.
The Triple Calendar:
So here, even though we get slightly less probability than the double, you have much more of a profitability sweet spot. So I am choosing this one.
You treat a triple calendar just like any other calendar.
We will add up our total credits and debits to calculate the yield.
Bought Jul 65 Call -$8.00
Bought Jul 70 Call -$4.60
Bought Jul 75 Call -$2.10 debit of $14.70
Sold Apr 65 Call +$6.50
Sold Apr 70 Call +$2.70
Sold Apr 75 Call +$0.52 credit of $9.72
for a total debit of $4.98
That gives me a yield of 9.72/14.70= 66.1% in 1 month
Exit Strategy: If the stock moves up against me, then I will close out the bottom calendar, and if it heads down against me, then I will close out the top calendar.
