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Ultimate Guide To Trading Call Calendar Spreads

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http://optionalpha.com - Long call calendar spreads profit from a slightly higher move up in the underlying stock in a given range. They also profit from a rise in implied volatility and are therefore a low-cost way of taking advantage of low implied volatility options. Calendar spreads lose if the underlying moves too far in either direction. The maximum loss is the debit paid, up until the option you sold expires. After that, you are long an option and your further risk is the entire value of that option. Options in nearer-month expirations have more time decay than later months (they have a higher theta). The calendar spread profits from this difference in decay rates. This trade is best used when implied volatility is low and when there is implied volatility "skew" between the months used, specifically when the near-month sold has a higher implied volatility than the later-month bought. ================== Listen to our #1 rated investing podcast on iTunes: http://optionalpha.com/podcast ================== Download a free copy of the "The Ultimate Options Strategy Guide": http://optionalpha.com/ebook ================== Still working a day job? Then our "Take 5" segment is for you. 5 mins videos each day on 1 thing you can apply trading options: http://www.youtube.com/playlist?list=PLhKnvfWKsu40z0EnsX0TNqCgUzb8tmM04 ================== Start our 4-part video course (HINT: these videos are NOT posted anywhere else online): http://optionalpha.com/free-options-trading-course ================== Just getting started or new to options trading? Here's a quick resource page we made that you'll love: http://optionalpha.com/start-here ================== Register for one of our 5-star reviewed webinars: http://optionalpha.com/webinars ================== - Kirk & The Option Alpha Team
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Text Comments (10)
Mario P (1 year ago)
Might be a stupid question but do you trade more than one contract? So can i sell 5 contracts the front month then buy 5 contracts the back month? Is the profit the same or does it become higher?
Option Alpha (1 year ago)
No stupid questions and yes you can trade more than one contract. It's just a factor of contract # for profits (and losses)
stg5ive (1 year ago)
What's your opinion on weekly calendar spreads in trading the Spy?
Option Alpha (1 year ago)
I think calendar spreads are a waste of time and money as a long-term strategy - there are good in certain scenarios but shouldn't be a profit center for you.
Tim Lanigan (1 year ago)
what risks are involved in selling a near term calls/puts? do you need a line of credit to sell calls and puts?
Option Alpha (1 year ago)
The market is efficient right so if you sell options closer to expiration you get less money or compensation for doing this. Also you do need a margin account to sell naked options - but not spreads.
brendan egan (2 years ago)
what about if you used two different strike prices and expiration dates
Option Alpha (1 year ago)
Yep you could use different strikes and expiration dates - just analyze the trade first.
warever37 (2 years ago)
Hi Kirk, I have a question, suppose your front/back months are 30/60 days, and after 20 days from initiating the trade (a Call Calendar), the stock trades above your strike price, but below your upper breakeven point. Now you have an unrealized profit from time decay, but what happens if you get assigned on your short Call since it's ITM now? How do you profit from this situation?...... Thx
Option Alpha (2 years ago)
+warever37 You would just willing exercise the long option you have for the back month which covers the share assignment and you're still left with a profit.

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