1. Black Swan Calendars Last week of options expiration study
By Ken Hodor
3/20/2010

2. Typical Calendar Spreads Problem
Major Black Swan events crush you!
For example 9/11

3. Black Swan Calendar Buy 10 calendars
For example $1.00
Buy 1 put with same $ value as calendar
For example find put strike that costs $1.00
On following slides DBE stand for Days Before Expiration

4. SPY Black Swan Calendars one week before expiration
Large Position one week before expiration on SPY using calendars.

5. If price drops $2 and volatility goes up 4%
What happens if price drops suddenly and volatility goes up 4%?

6. If price goes down $5 and volatility up 10%
What happens if volatility increases up 10%—I.e. price drops suddenly?

7. If price goes up $2 and Volatility down 1%
What happens if Volatility drops only 1 %?

8. Looks good for a reversal and historic low in Volatility
Historic Volatility
Implied Volatility

9. VIX looks good and low…can’t go much lower! 

10. 4 days before expiration 9:30 AM

11. Surprised by volatility differences puts to calls 4 DBE 9:30am

12. 4 days before expiration 3:45 PM…but I am not scared.

13. I thought the VIX could not go down any further…what gives?
3 DBE 7:22AM

14. Down almost $10,000
3 DBE 9:27 AM

15. Volatility on calls is being crushed!

16. Whew! Maybe my analysis was correct. But still down $6,600
3 DBE 12:25 PM

17. OMG the VIX is turning down again…dare I hold on till tomorrow?
3 DBE 12:59 PM

18. Price has held…thank goodness!
2 DBE 10:20 am

19. We are finally holding…the VIX has to go up from here.
2 DBE 12 Noon

20. Yippi! I new it had to turn. Up $8,500.
1 DBE 7:12 AM

21. Up $13,500. Sell 200 116 SPY calendars, hold on 115s.
1 DBE 8:52 AM

22. It looks like I can make some more $ on 115 Calendars.
1 DBE 10:52 AM

23. Position after sale of 116 calendars
1 DBE 10:58 AM

24. Volatility gets crushed even more—down to 8%. WOW!
1 DBE 10:58 AM

25. Can I still make money on this trade…hold the long calls?
Position at the close of expiration—long 70 Apr 115 calls

26. Results $50,000 Options margin Returned $15,000 in one week
$22,000 swing positive last day
ROM (Return On Margin)
15,000/50,000 = .30 or 30%

27. Conclusions
Black Swan Calendars are great for sideways markets to protect from dramatic sell offs
Volatility gets crushed the last week.
Trading the last week can be very lucrative or devastating.
I was lucky!