TT - KYO: AAPL Calendar, 02/24/14

TastyTrade - Know Your Options

LIZ & JNY explain how a calendar in AAPL works.

What is a Calendar spread?

1. You sell the front month and buy the back month of the same strike.
2. Since you are buying the more expensive option, your risk is the debit that you pay.
3. Make sure your debit is less than the value of the short option, as this is used to forecast the future value of the Calendar.

How do Calendar spreads make money?

1. IV increases, or
2. The underlying moves to your strike at expiration, or
3. Time passes without the underlying moving.

• Calendar entry criteria:
• Low IV Rank!
• Open on Monday following monthly expiration Friday.
• Front month DTE should be around half of the back month DTE.
• Generally choose the first OTM strike.
• You want the underlying to go to your strike, but not through it.
• If it does you should close.
• Exit:
• Home Run: at expiration the underlying is at your strike, and you close out.
• Foul Ball: the underlying moves far away from your strike by expiration. Close out if your strike gets passed by.

TT - MM: VIX Saved the Cat, 02/21/14

TastyTrade - Market Measures

Is there a correlation between the price of the VIX and being short premium?

We looked at the daily closing price of the VIX between 2005 and 2013 and bucketed the results annually with VIX above and below 15.

TT - GC: Cheater Math, 02/20/14

TastyTrade - Game Changers

Equation to calculate the expected move of an underlying:

    1SD move = Price x IV x SqRt(DTE/365)

Cheater Math for 1 day expected move:
    1SD move = Price x IV x 5%
    2SD move = Price x IV x 10%

Example of 1 day move in SPY: Price = 183.02, IV = 15%:
    183.02 x 0.15 x 0.05 = $1.37 (1SD move)
    183.02 x 0.15 x 0.10 = $2.75 (2SD move)

TT - MM: Desperado, 02/20/14

TastyTrade - Market Measures

During periods of extended rallies and low IV we may look to trade calendar spreads. With a directional bias, we wanted to test how lower probability calendars compared to ATM calendars as well as put debit spreads.

We tested downside put calendars into up moves (up 5% in two weeks) over 5 years in IWM and EWW.

You can easily see that buying a calendar that is 1 strike OTM outperforms the other "cheaper" calendars.

SLM Ribbon

The TastyTrade SLM Ribbon is a study set consisting of 3 exponential moving averages: 8, 13, and 21 days.

• Bullish open signal:
• 8-day EMA cross above the 13-day EMA
• 13-day EMA above 21-day EMA
• Open above 8-day EMA (more conservatively: complete candlestick above 8-day)
• Bearish close signal:
• Close below 13-day EMA
• or, 8-day EMA cross below 13-day

TT - GC: Randomness and Candlestick Patterns, 02/13/14

TastyTrade - Game Changers