Episode 17 - Time spreads

Episode 17 - Mastering Time Spreads: Calendar and Diagonal Strategies

Description: In "Episode 17 - Mastering Time Spreads: Calendar and Diagonal Strategies," Koen Hoorelbeke and Peter Siks dive into the intricacies of time spreads, exploring both calendar and diagonal spreads. This episode is essential for traders looking to enhance their strategies with advanced options techniques.

Understanding Time Spreads:

• Time Spread: A strategy that involves using options with different expiry dates.
• Calendar Spread: Involves options with the same strike price but different expiration dates.
• Diagonal Spread: Involves options with different strike prices and expiration dates.

Key Concepts:

• Volatility Cones: These show implied volatility for different timeframes (1, 3, 6, 9, 12 months), highlighting that short-term volatility is more variable than long-term.
• Profit from Volatility Difference: Time spreads capitalize on differences in volatility between short and long-term options.
• Typical Setup: Generally involves buying a long-term option and selling a short-term option, particularly effective if short-term volatility is higher.

Examples and Strategies:

• Earnings Play: Selling short-term options with high volatility (e.g., due to earnings reports) and buying longer-term options.
• Low Volatility Environment: Consider buying short-term options and selling long-term options to exploit the volatility differences.
• Risk Management: Time spreads generally have defined risks but can become undefined risk strategies if not managed correctly at expiration.

Practical Tips:

• Monitor Positions Closely: Time spreads require careful monitoring, especially at the expiration of the short-term option.
• Volatility Graphs: Utilize tools like Saxo Trader Pro’s volatility graphs to assess implied volatility across different expiries.
• Experience Required: Time spreads are more suitable for advanced traders due to their complexity and the need for active management.

Conclusion: Time spreads are primarily volatility plays and are not recommended for novice traders. Traders should have a solid understanding of both volatility and the underlying asset to successfully implement time spreads. In this episode, Koen and Peter provide invaluable insights and practical advice for mastering these advanced strategies.