# All Correlations Go to One: David Romeo on Double Calendars and Tail Risk

> David Romeo had 10 double calendars that looked uncorrelated until one move hit them all. Here is how he now builds a portfolio around tail risk instead.

- URL: https://optionomega.com/blog/all-correlations-go-to-one-double-calendars/
- Published: 2026-09-05
- Author: Dan Sheridan (Options mentor and former CBOE market maker)
- Featuring: David Romeo (Creator of TradeBlocks)
- Topics: Calendars & Diagonals, Portfolio Management, Risk Management, Automation, Interview
- Video: [All Correlations Go to One — Dan Sheridan with David Romeo](https://www.youtube.com/watch?v=Wbj3fy4zCb4)

## Key points

- At his peak, David Romeo ran 10 short-term double calendars at about 1–2% allocation each; a correlation matrix called them uncorrelated, but in a big move they all moved together, and added up across the 10 trades he might have had 10–15% of the account at stake.
- About 90% of his portfolio is now double calendars, with the other 10% in butterflies, reverse double calendars and the occasional reverse iron condor.
- Short-term calendars with shorts under seven days had faded for him in the six to eight months before the September 2026 conversation, so most of his shorts sat 15–20 days or more out at the time.
- He automates everything and no longer trades discretionarily; he channels his urge to tinker into backtests and portfolio analysis instead of live trades.

David Romeo once had 10 short-term double calendars on at the same time. A correlation matrix said they were uncorrelated. Each was only about 1–2% of his account. Then the market made a big move, and they all moved together. Added up across the 10 trades, he might have had 10–15% of the account at stake. "That's a bad day," he said.

In this conversation, Dan Sheridan, a former CBOE market maker, talks with Romeo, a software engineer and the creator of TradeBlocks, about how two tail events reshaped his trading. Dan wanted viewers to see the path, not just the endpoint: from over-leveraged short premium to a portfolio of about 90% double calendars, with Romeo stressing throughout that this is what works for him.

## From Robinhood to two tail events

Romeo started trading options around 2019 on Robinhood. When COVID hit in early 2020, he was holding debit spreads on Microsoft and Apple without really knowing what they were. He found tastytrade, got deep into the Greeks, and beat the S&P, but did not know whether it was skill or luck. He moved toward more mechanical trading, including the 112: a put debit spread combined with two naked puts further out of the money. He traded it on ES futures without fully understanding SPAN margin.

Two events followed:

| Event | What he held | What happened |
| --- | --- | --- |
| Yen carry unwind, August 2024 | Heavy short premium (112s) on ES futures | SPAN margin expanded fast; he was on a boat in the British Virgin Islands with only a phone and spotty internet |
| Liberation Day, April 2025 | The same kind of trades on S&P options instead of futures | A big drawdown, because he had changed the instrument, not the trade |

After the first, he decided the problem was margin and moved off futures. After the second, he admitted the real problem: he understood the mechanics of the trades, but not the strategy, the risk, or the portfolio. In his words, "the test looks right, but the portfolio is wrong."

## The backtest matched his account

Then he found Option Omega. He backtested the trades he had been running over the same periods and compared them to his real account. Allowing for the adjustments he'd been making live, they were "pretty spot-on," which was painful: it showed how much volatility he had added just by not looking at the numbers.

Next came portfolio construction. Many backtests looked good on their own, but when he combined them into a portfolio with real capital allocation, the max drawdown jumped and the CAGR fell. "The sum of the parts do not equal the whole."

## Building TradeBlocks

To understand why, he started with Ninja Taco, a tool built by Wizzy, a well-known helper in the [Option Omega Discord](https://discord.gg/s5HG3ECUE4). It could run Monte Carlo simulations and other analysis. Late in 2025, in his view, AI got good enough to build with.

He offered to help extend it, and using AI he built a working first version of a new tool in one weekend. Wizzy told him to take the reins, and it became TradeBlocks (tradeblocks.io).

- TradeBlocks is free and open source.
- Users upload backtests or portfolios as CSV exports. It works with other sources, but Option Omega has first-class support.
- He packaged its analysis tools into an MCP server, so AI models such as Claude, ChatGPT or Gemini can run the analysis, answer questions and suggest next steps.

His goal is a systematic process that he, or an AI agent, can follow, though he cautions that you do not always want AI to be the deciding factor. For a worked example, see [how we backtested SPX put spreads with AI](https://optionomega.com/blog/backtest-spx-put-spreads-with-ai/) and the [Option Omega MCP](https://optionomega.com/mcp/).

## Today: about 90% double calendars

Romeo stresses that this is what works for him, not a recommendation for anyone else:

- **About 90%:** double calendars, in his main portfolio and smaller accounts, including retirement accounts.
- **About 10%:** butterflies, some reverse double calendars, and maybe a reverse iron condor here or there. He says he places the fewest RIC trades and is "basically treading water" on most of them.

Why calendars? After two drawdowns from having more short options than long options, he moved into debit-based trades. Calendars give him many ways to build a position:

- **Lower deltas** when he wants to capture movement.
- **Higher deltas and further out** to capture more of the theta.
- **Skewed** to one side to use gamma, for example skewing to the upside after a pullback to play a mean reversion.

He calls himself "a mediocre backtester, but much better at portfolio construction." He can layer those structures and then run a tail risk analysis: how will they all win or lose together in extreme market stress?

## Tail risk, not correlation

For Romeo, fitting strategies into a portfolio "has very little to do with correlation" and "everything to do with tail risk." On a double calendar you can get hurt in either tail.

Dan said this is how market makers worked. Each morning they got printed sheets showing how their positions would look if the market fell 5% or 7%. They looked at tail risk, not correlation. He added that stacking more double calendars does not, on its own, help the downside tail.

His 10 calendars show why. In a big move, gap or stress event, "all correlations go to one." Romeo's view is that they were not bad trades; he was fooling himself about the combined risk.

## Why his calendar shorts moved out in 2026

At first he searched for "evergreen" trades: ones that stayed positive expected value as far back as the data went. Many were shorter-term double calendars, which he defines as shorts under seven days, with structures like 5/7, 2/3, 2/7 and 8/10. Some, like a 9/23, can be backtested back to 2013, and in his words "you can make them positive expected value."

From the end of 2025 until the time of the conversation, many of those did not do well. In his words, they "tailed off if not dropped off" over roughly the past six to eight months. He would rather cut trades that are not working than feel held hostage to past results.

| | Short-term double calendars | Longer-term double calendars |
| --- | --- | --- |
| How he defines it | Short leg under 7 days | About 21 days and above, on the shorts and/or the longs |
| Share of his portfolio | One or two trades, less than 1% to maybe 5% | Most of the portfolio |
| Typical use | Intra-week, lower deltas, on fast movers like QQQ | Shorts about 15–20 days or more out |

He says he is not good at trading gamma or predicting moves, so he wants trades with enough time to be right. Every double calendar has delta rails that exit if price moves too far beyond the strikes, and he is often in one for about 10 to 20 days. So far in 2026, as of the recording, the longer trades had performed better for him, with less portfolio risk, less management and a smoother ride.

## Automation and the tinkering problem

Romeo was automating even before Option Omega added automation, and calls his early self "probably the worst person using automation in the world." He automated the entry, then kept adjusting: spreading off a short put after a drop, or adding the other side to make a strangle.

He found two causes and two fixes:

1. **He did not understand what he was trading.** He did not know a trade's normal drawdown at a given point, so he panicked. Learning the trades fixed that.
2. **He is a tinkerer.** So he moved the tinkering out of live trades and into finding better backtests and building better portfolios, in a controlled way.

Now he does not trade discretionarily at all. He uses webhooks in Option Omega [automation](https://optionomega.com/features/trading/) for entries from external signals, which he can test with CSV backtesting. Automation, as he puts it, is his "consistency mechanism."

Dan said his students' most common problem is the few trades that got away because they did not take a planned exit. That is why he calls automation with good rails a game changer.

## Key takeaways

1. **Uncorrelated didn't mean safe for Romeo.** In extreme moves, correlations can go to one. His 10 "uncorrelated" calendars added up to 10–15% of the account at stake on the same day.
2. **He builds around tail risk.** Romeo checks how his positions win or lose together under stress, much as market makers did with their morning risk sheets.
3. **Good backtests didn't add up to a good portfolio.** Combined, his strategies showed a deeper max drawdown and lower CAGR than each looked alone.
4. **"Evergreen" trades can fade.** His short-term double calendars weakened in the six to eight months before the September 2026 conversation, so most of his shorts sat 15–20 days or more out.
5. **He moved the tinkering into research.** Automation handles execution; his effort goes into backtests and portfolios.

## Test it on your own portfolio

You can backtest double calendars at different deltas and durations, combine your saved tests into a portfolio, and see how max drawdown changes when they trade together, all with the [Option Omega backtester](https://optionomega.com/features/backtesting/). For more from Dan on this subject, read his [five principles of an options portfolio](https://optionomega.com/blog/options-portfolio-principles-dan-sheridan/).

**[Start a free trial](https://optionomega.com/pricing/)**

*Watch the full video: [All Correlations Go to One — Dan Sheridan with David Romeo](https://www.youtube.com/watch?v=Wbj3fy4zCb4).*

*This post summarizes a conversation from September 2026 and is educational only. Options trading involves substantial risk.*