Calendar Spread

Byivtrades

A Calendar spread is when you sell an option and buy another one with a more distant expiration date. This can be created with either puts or calls.

For example, let’s say you wanted to play Netflix with calendar spread because you figure that the stock has dropped too far too quickly and will bounce soon but, longer term it should continue to drop.

This is how you would structure the trade:

SELL TO OPEN NFLX JUL 15th 180.00 PUT

BUY TO OPEN DEC 16th 180.00 PUT

This trade will allow you to benefit from the immediate expected bounce in the stock and set you up to take advantage of the longer term down turn.

Similar Posts

  • What is a Binary Option?

    Byivtrades

    A binary option is a cash-settled option having only two possible payoff outcomes: either a fixed amount or nothing at all. Some binary options are referred to as “fixed return options.” As of the date this product was approved for trading, the only binary options approved for trading (other than credit default options, as defined…

  • What Is Implied Volatility?

    Byivtrades

    This is basically the level of volatility reflected in the current options prices. Each options contract has a unique level of implied volatility that is computed using an options pricing model. The Implied Volatility (IV) is fluid and consistently changing. When the IV is high, it indicates that the option premiums are expensive. When the…

  • Intrinsic Value

    Byivtrades

    The Intrinsic Value is basically the value of an in-the-money option minus its time value. Intrinsic value is the current real tangible value of the options contract. The intrinsic value of a call option is calculated by subtracting the strike price of the Option from the underlying stock. For a put, intrinsic value is the…

  • Time Value Of Options

    Byivtrades

    The time Value of Options refers to the value of the options contract beyond its intrinsic value. Time value is equal to the extrinsic value of the options contract. Out-of-the-money options consist only of time value. The value of in-the-money options can include both intrinsic value and time value. See also In The Money Options,…

  • What is Legging?

    Byivtrades

    This is when you enter into a position by purchasing one part of the spread at a time rather than buying it all at once. Legging can improve the risk-reward of the trade if the underlying stock moves in the right direction. If not, it can reduce the potential loss.

  • Debit Spread

    Byivtrades

    This is basically any spread where the premium paid from buying part of the spread is greater than the premium received for the other part of the spread. For example if you bought the GOOGL 95.00 Calls for 8.00 and sold the 100.00 Calls for 5.50 the debit would be 2.50 See also: Credit Spread,…

Leave a Reply