First, I hope everyone had an enjoyable Christmas and is ready for 2025! I’m excited to see what God has in store for us all. He is at work in all of our lives daily and I hope I, or we, can always find the ability to say thank you for that gift. I learned several years ago a simple quote, “I may not have much, but I have enough”. I’m not sure where I learned it or why it has stuck with me all this time but I think it’s true. I guess the real question then is, do I even need “much”, when I have all I need? Thank God for that!

Getting back, I wanted to revisit the Double Calendar Spread Options Strategy again. It’s been many years since I’ve traded the strategy but it does seem, with albeit older more experienced eyes the strategy offers a great deal to consider. If you’ve been following any of my recent posts you’ll undoubtedly know how much I’m coming to enjoy the baby rhino options strategy. That strategy suits me quite well and I think, based on the information below, so too will the double calendar spread options strategy.

With that, let’s do a relative deep dive on this unique options strategy and see what may be possible. One last thing, here is a detailed post about the strategy for anyone not familiar with the base concepts.

Post Agenda

AI Otter Image

Double Calendar Spread Options Strategy Overview

The double calendar spread is simply two calendar spreads tied into a single strategy but at differing strike prices. Ideally, creating a wide enough profit range to benefit from the passage of time or theta decay. The “profit tent” as it’s commonly referred is that area in between the break even prices where profit enters the trade. To make this easier, here is an image of the double calendar spread options strategy I’m considering in this post. However, with so many strikes and expirations available there really is an abundance of possible opportunities at any given time.

double calendar spread options strategy example
Double Calendar SPY Example

Often, double calendars are used when volatility is low and the expectation is that it will rise. However, as I look at the strategy today, I’m thinking this may not be all there is to the double calendar story. Before we get to that, there are a few other characteristics worth pointing out with regard to double calendars.

  1. Double Calendars have dramatically positive vega. Should volatility rise while the trade is open breakeven prices will widen and profit potential will increase. However, that’s a too edged sword. Should volatility contract further, profit is zapped from the trade and the profit tent sags just as much.
  2. Limited Risk. Given the outlay of cash at entry, the strategy lends itself well to defined risk traders.
  3. Profit Tent. As mentioned and as can be seen from the image above, the strategy provides two areas for maximum profit. I guess two is better than one.
  4. Time decay. The double calendar strategy benefits particularly well when the sold shorts have a higher implied volatility than their long counterparts.

Double Calendar Spread Construction

Building a successful double calendar does require some pre-requisite knowledge. However, I’ve always believed the best way to learn is to try and I think that’s true with options as well. My thoughts are, with any strategy, is to find a way to employ the strategy for the lowest possible amount of risk and watch how it plays out throughout the entire trade. Being mindful of how the trade behaves with respect to price and volatility movements.

Still, on the surface, the strategy is relatively straightforward to construct. Here is how I’ve built the double calendar we viewed above, in step by step form.

  1. Select the underlying. I used SPY above but the indexes are increasingly volatile and while a rise in volatility will help immensely, so to will a decline become unbearable. Thus, choosing a stable underlying is my preferred approach.
  2. 20 – 30 Delta short strikes. Honestly, this is just a starting point. It’s probably good practice to fine tune the trade once you have a double calendar constructed and can view it from the profit/loss diagram.
  3. 20 – 30 Delta long strikes. The deltas on the long side may be slightly different but should be similar.
  4. Analyze and view the profit/loss diagram at expiration. I wouldn’t just blindly enter a double calendar spread options strategy without first considering this diagram. So much can be learned just looking at the graph.

Ideally, at entry, the price should be comfortably within the profit tent. But for more experienced traders it is certainly possible to sway the tent one way or another. For instance, if I was immediately bearish on SPY but wanted to take advantage of the lower volatility then I’d position the current price to sit near the upper peak.

Double Calendar Spread Management

Managing the double calendar spread options strategy isn’t all too difficult. Mostly it just involves keeping a watchful eye on the market and the trade itself so that action can be taken if it becomes needed. Honestly, this alone is why many would be options traders avoid trading options. I know I’m not the only one that can’t just drop everything and attend to a trade every single hour of the day.

Regardless, we’ll consider possible adjustments next. For now, the more important aspect has to do with money management. After all, not every trade is going to work and we have to have some guardrails in place to either take a profit or accept a loss. Truthfully, the way in which each trader accomplishes that goal is as unique as the possible variations to this strategy.

Regardless, I think a sound approach to the calendar spread is to have a maximum number of adjustments pre-determined and an attainable profit target decided. For me, I’m aiming for 10% of the maximum risk. So, considering the trade shown above, my profit target would be $55 dollars for the trade. This trade has a maximum possible loss on the downside of $5.51 or $551.

Lastly, don’t be fooled by the profit peaks. They are incredibly hard to hit. If you do hold on for more profit I think it paramount you watch the trade like a hawk and eliminate it at the first sign of trouble.

Double Calendar Adjustments

The double calendar strategy has thousands, if not millions, of possible variations. Thus, finding and discussing every conceivable adjustment just isn’t possible. Market circumstances, liquidity, price movements, and other factors would all dictate which adjustment makes the most sense or when. Ideally, we’d like to not make an adjustment. Since doing so, usually involves accepting additional risk or paying more in premium. However, with double calendars, adjustments are relatively common place and not something that should eliminate the strategy from consideration.

There are many different ways a trader could approach a poorly performing double calendar. We may wish to adapt the current strategy itself or we may choose to build onto it with another strategy. All of which can be successful but all of which can also fail. Therefore, I think the below adjustments are more than adequate to get the ball rolling down the hill and get you thinking about the x’s and o’s of any particular adjustment.

  1. Roll near term options as expiration approaches or as price breaches the strike price.
  2. Shift the entire spread by closing the initial position and opening an entirely new double calendar spread.
  3. Add a third or even a fourth calendar spread to the trade.
  4. Hedge the delta. If price trades too far in one direction the position’s delta will become out of balance. Any trade that would offset the delta is worth considering.
  5. Hedge the vega. Similar to hedging the delta, vega shouldn’t be ignored. If volatility changes dramatically while the trade is open an offsetting vega trade could be warranted.

Double Calendar 1Y Back Test

Back test Parameters

  • SPY ETF
  • Strategy: 30 DTE short leg & 60 DTE long leg – Double Calendar Strategy
  • Entry Criteria: ~30 Delta
  • Exit Criteria: 21 DTE or 10% profit target
  • Maximum of 2 trades on at any given time
  • Dates: 12/21/23 – 12/20/24

Back test Results

Total # of Trades33
Total # of Winning Trades29
Win Percentage87.8%
Total # of Losing Trades4
Losing Percentage12.2%
Average Buying Power Used$1,834
Largest Winning Trade$272.92
Largest Losing Trade($625.82)
Total Fees$186.49
Return on Capital43.23%
Maximum Capital Usage$2,471
Total Profit$1,068

Final Thoughts

Well, there you go, the double calendar spread options strategy sure looks like a winner for the long term. There were a few bouts of volatility that caught us all off guard this year and in those instances the strategy failed miserably. Should volatility stay muted going forward then the double calendar may become even more enticing. However, for now, I’m staying on the sidelines through at least January and possibly even February. These months can typically indicate what the rest of the year may have in store.

Regardless, lower risk and the adjustability features inherent to the double calendar spread make this one something I’m considering adding to my regular back of tricks. The strategy performed very well in the back test highlighted above but performed even better in subsequent back tests. For instance, by closing at 20% profit instead of 10% I was able to triple the total profit to just over $3,000! In another instance, I changed from a maximum of 2 trades at any one time to 3 and with a take profit at 20% I cleared above $4,500 in profit for only an additional $500 in maximum capital usage.

In any case, I do like what I’m seeing from the strategy and will report back with any updates in the future. For now, it’s off to fully testing and analyzing additional pitfalls to the strategies consistent use.

Until the next post.

God bless,

Jeff