With both double calendars and double diagonals, traders sell front month options and buyback month options. Â They are both essentially volatility plays in that they are long Vega, but there is an added complexity in that we are trading two different expiry months on the volatility curve.
Being short the front-month options, we want front month volatility to drop and back month volatility to rise or at least stay steady.
That’s why looking at earnings dates can be important.
In the following case studies, we are short the June options which will expire before the earnings announcement. The July options will hopefully hold their value due to the earnings announcement falling within that cycle.
Watch the video below to see how the case studies worked out.
Video Length: 00:06:22
