If you have been in MTM’s Group Coaching class over the past several months, you have seen me model out several long double calendars…mostly on the SPY but on various other stocks and ETFs too. Some have done better than others, but overall double calendars have been profitable more often than not. The times they have worked best have been during volatile events.
FOMC’s Expected Rate Hike
Just recently, there was another rate hike expected to be announced on Wednesday afternoon. In class on Tuesday, we looked at a potential long double calendar on the Russell 2000 ETF (IWM). In the 6-month daily chart below, you can see there was a support and resistance level around the $188 to $189 level and the ETF was trading a little above it.
We also noticed that the Friday expiring options had implied volatility (IV) levels much higher than the Monday expiring options courtesy of the expected announcement on Wednesday as seen below.
The Double Calendar Plan
With the underlying trading around the $190 level, we decided to go about 44 higher and lower with the strikes. We did the 194 call calendar and the 186 put calendar. We sold the Feb-3 expiration, which was Friday, and bought the Feb-6 expiration, which was Monday as seen below. The cost was 0.34 ($34 in real terms).
The P&L diagram is an estimate at the short expiration because of the two different expirations. As you can see below, it sure looked good on paper!
It showed max profit at either $186 or $194 to be over $150, which is really good based on the cost of $34. The guesstimate break-evens were from about $182 up to just over $199 to the upside. Not too bad overall at least on paper. There will be changes in IV levels, time passing and naturally the ETF will be moving as well.
Wrapping It Up
Let me start by saying if you have not been in MTM’s Group Coaching class, why not? You are missing out. If you are familiar with double calendars, you know how effective they have been lately. If you are not, it is time to learn.
Senior Options Instructor
Market Taker Mentoring