What's the catch with this strategy?

General
1

I am not sure what this strategy is called but I saw this on this Youtube Video by Elearnmarkets .

I tried to see the payoff graph and it looks good since there is prob of profit of around 90%.

So the question is what are the disadvantages with this strategy? Basically this involves buying next weeks option and selling near weeks option both call and put which are OTM and at around +/-400 pts away from underlying for the same strike.

Also can anyone tell me how do I calculate the margin required to implement this?

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And with some modification the prob of profit is 94%. Is something wrong with this model or it looks okay?

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2

This is calendar spread (there are few variations to calendars eg Diagonal etc).
Usually you sell weeklies (front week or front month whatver you call it) and buy monthlies (back month). (not the next week as liquidity is very low).

If you expect volatility to go up, you deploy calendars.

What you see in the payoff may not play out as exactly as it involves two or more expiries, and price for the back month (next mont) has to be estimated which is based on the current volatility, underlying price, number of days remaning to expiry etc (calculated through Black Scholes).

Final price may be different as it depends on lots of factors hence the final payoff.

4

VIX.

Play with IV. You will understand. That’s the devil in details.

5

This varies on what is the base of your calculation.

Try Long Time Butterfly - Unofficed then. You will be amazed in POP. But its deception.

6

The payoff and pop is based on current IV. the profitable range it shows is not valid at a different iv . Its a dangerous spread. Margin is limited to ur net debit plus exposure. Very small. But dangerous position if not executed prefecrly. U shud have a very clear view on future vix fr this. It is a positive vega position in theory but acts as a negatve vega positon practically. So forget the theoretical curve. Best way to learn is pay market its tution fee and practise on real calendar spreads. Gud luck my man

7

This looks very similar to double calendar spread, not all legs have similar distance.
Probability of profit doesn’t mean that you may get 10k and 20k+ profit or whatever is the max profit mentioned. It simply means that you may end up abv break even with 88 or 94% probability it could be just ₹ 1 profit also.

Now to profit in this setup, rise in volatility in most crucial factor. It will enhance the chances of being profitable and roi will be more if vix rises

Good setup this although… :clap: