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I like all the videos you do on options, especially Iron condors, vertical credit spreads and others. However, I would like to take a covered call I sold which is expiring on 2-24-23 and run it out to a further month. After watching your video on calendar spreads, (buying a call and selling the next month), I believe it would cancel out the 2-24-23 covered call that I previously sold and roll it out to the next month, ( at the same strike), just give me more time.
Predicting that the stock price would remain relatively the same price at the date of expiration, why would one choose to go with the calendar spread trading strategy over iron condor trading strategy?
If a stock has a steady rate of growth over a period of 6 months, you could time where you think that price would be in 6 months and then sell it shorter every month at the same price. If it expires but stock price went up then you get that premium from the short for free and your long call increases in value again, you then do the same thing or take your profits, have to adjust as needed but this wins if the same price stays the same or goes up. Prices can either go up, stay the same or go down so this gives you a better chance of being right and your initial investment is immediately lesser by selling the shorter call
and what if the stock price shoots pass the strike price i.e. $180? you would still be profitable right as the long call will grow faster than the short call?
What happens if the stock price goes above 170 before the short expiration option. You never talked about the down side of trading these. This is a way to buy a cheaper call but I need the catch.
The catch is that it's not a bullish strategy like buying a call option. If you buy a call calendar, you need the stock price to be somewhere near the strike price as time passes. If it rockets higher and through the strike price, you'll lose money. I'll need to redo this video!
If you have a call option at the same price or higher It will cancel itself out, And since the short option expires first then you won’t have any assignment risk after that.
when u do a long calendar spread, there is a profit zone, with your strike 170 somewhere in the middle. if your short call goes beyond the upper break even point, you will lose money. when this is about to happen, you can consider to roll the option out and up. The purpose of rolling the option up is to increase the upper break even point. but in doing so, you may have to buy a slight prem to cover this new rolling position.
My first long calendar spread I’ll be going into this week (today JULY 27th) ... Sherwin Williams. Sell Aug 21 640 call . Buy Sept 18th 640 call. Looking to buy at a price of $6. Ive traded basic options for sometime . This is my first option of this type . Let’s see how it works .
No, it's the opposite you have to buy a long call and sell a short call example you buy call with a expiration date 2 moths out, and sell a call with exp a week out and then you start rolling and rolling forward till last week of the long call
Yes, you'll be left with the long call. But keep in mind this is if the short call expires worthless / out-of-the-money. If it is in-the-money (stock is above the call strike), then you will end up with -100 shares (short 100 shares of stock) if you allow the short call to expire in-the-money.
Do you just let this calender spread expire on its own or how do you sell for a profit if it is up a lot of money before the expiration on the short term
Always sell a day before to avoid any crazy surprises. Better for peace of mind & locking in profits. May be save 10-20% of options for the last day, but i wouldn't let it go to expiry. Just get rid of them yourself & be trouble free. There seems to be some crazy returns on these. I will know on monday if all worked correctly. Should be up 20% minimum
Yes but you can do this at the same time. Normally you can hold down your control button and manually choose each option strike.. Or you can set your option type to whichever you want (vertical, butterfly etc)
THIS IS TRADED S ONE ENTITY. THE SHORT OPTION WILL BECOME ZERO AT ITS EXPIRY & THE LONG WILL NEED TO CONTINUE. WILL I BE CORRECT IN THIS THINKING OR THE SPREAD DIES OUT AT THE EXPIRY OS THE SHORT OPTION, PL?
assuming short option expire worthless, the long dated option trade is still valid. You then roll other short call and repeat the process until the time u wish to close your long dated option.
Yes, when you close out the calendar spread you will be buying back the short call (in this case, paying $1.56) and selling the long call (receiving $4.80). The net result is that you receive $3.24. With an initial purchase price of $2.25 the profit would be $0.99 on the spread ($99 in actual profits per calendar). I hope this helps! -Chris
Great video explaining a strategy I want to use but cannot seem to fully understand :-( Is this strategy the same as what is referred to as a 'poor man covered call'?
It operates on a similar principle, but I don't think you could do it on a platform like robinhood. You sell calls for income once a week, but instead of backing it with 100 shares for collateral, you collateralize your right to buy 100 shares. The poor man's covered call uses a diagonal option, where the back month option has a different expiration date. Your max loss in this case is the difference between strikes AND the difference in theta, but this can be priced as the debit premium to enter the spread. If you purchase the ITM call 6 months out, you can sell covered calls OTM or ATM once a week for 26 weeks. Whenever your front month expires worthless or you buy out at take profit, you keep the premium from your front month OTM short call. If you paid $n premium for an ITM call 6 months out, you profit if your weekly premiums earned from your covered calls is > n. Each covered call must have an average premium collected of $(n+1)/26 to break even on the position. After your last short call has been sold, you have a deep itm long call with no obligations and little to no downside risk. If I've sold 25 calls using my long ITM back month as collateral and not been exercised, I'm only n/26 dollars away from breaking even. The next day, there's good news and the stock price shoots up. long Calls have unlimited upside, so I call my broker to exercise the long call for profit, and now I have a lot more money than I started with.
Hey Chris, I have a question about put calendar spreads that I hope you can help me out with. Essentially, I paid a net debit of 1.6k for a put calendar spread on BAC for $40. It was going fine today until around 3, I went from $4,000 in my portfolio to -$8,000 portfolio value. I thought the most I could lose was the premium that I paid to get in the trade? Please help Chris, I’m panicking.
What Happens If Short Leg of Bear Put Spread or Calendar Spread Exercised, before expiration on american style option and you are not prepare for it???
in the case of a calendar spread, if your short leg is excercised, you must excercise your long leg to cover the short leg, otherwise you have an open long leg that is losing theta. in the case of a short put spread if your short leg is excercised, you should close your long leg anyways because that is the point of maximum profit, by leaving it open you risk losing profits.
It can do well if SPY remains range-bound and/or trends towards your calendars short strike. You can, for example, buy call calendar spreads with strike prices above the stock price. If SPY was at 220, you might buy a 230 call calendar, in which case you're anticipating SPY to drift higher towards $230 throughout the duration of your trade.
OK what if you combine both -so technically for earnings play Or for a longer-term leap or underlying that you’re very bullish on you can do a vertical spread with a short call That has higher strike price expiring about Halfway through the far expiration on your long call . This allows you to lock in today’s price If the IV is low also get a credit to lower cost basis And then you’ll just have a standard long call without the annoyance of that Limiting vertical spread profitability ceiling.Great If you anticipate that underlining will remain below the strike price before the short call expires but then raise above your initial lower strike price on your remaining contract. Does it make sense or am I just Watching too many of your videos?
What I don’t get is how do you sell a option that you don’t own or haven’t bought ? All these videos keep saying the say thing @2:03 It says you buy a option in a vertical and then sell a option In the vertical... But never explains how you’re selling a option that you didn’t purchase?
hopefully the short call u sold expires worthless, u then roll another short call and collect further prem. repeat this process until the time u intend to close the long dated option, which is typically ~30d before DTE. Within the 30d DTE, the theta decay of the long dated option will be very high and selling call during this period is not worthwhile.
@@JK-vb9ps thank you for the response and one more last question if you don't mind. what if the price of the underlying stock surpass the short leg by the expiration date and get assigned? In this case I'm assuming you'll have to sell the long in order to settle? Meaning, this would be the worst case? Thank you
One feedback, It seems that you are in hurry and explaining so fast that at many places i missed the concept. Please do note that you may be an expert of your field but if you explaining or teaching something then you have to match your speed with the thinking process of your students or audience. So that they can also grasp the concept in one go. which is missing here..
Thanks for the feedback! This is an old video and I've improved with the rate of speech since then, which you can see by checking out some newer videos. I always pay attention to my rate of speech when recording videos these days!
this strategy does not require lots of capital. It means that win probably is not high. It only works if long call is at the right place (in high deltas) at the end of the short call. Looks like another gambling strategy.
Actual with only taking small profits win percentage is around 83% because you are able to take advantage of the fact that the stock can move up stay the same or down in relative amounts usually around the 9% mark in just a week most indexes dont jump around 10% every week so trading something like SPX with around 2000 capital per trade can easily net 200+ on a 10% that you can get in just a matter of a few days betting that it wont move more than 9% one way and 9% the other way that means you have 18% movment ability and still can profit especially if you are able to be on vegas side by purchasing the up front call with more iv than the back month call. I would call it a gamble if you have never traded options or complex strategies and then to go think you can trade one of these on a huge index that would for sure be gambling but if the trader already trades spreads and understands how dangerous the short side of the calendar spread can be they can most likely never be assigned due to mitigation of risk properties such as EXT value of the short or write call and the day till EXP is important also if the stock is near EX dividends is huge sometimes its best to stay away from ER release on calendar calls but in most instances it can be a worthy spread to implement on earnings.
One constructive criticism that applies to all the videos I have seen from your channel. Try starting a sentence without the word “now”. It is like a nervous twitch that you may not even notice but I’ve spoken to a couple of people who find it .... off-putting... for the viewer.
✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf
Hi, can i keep the second leg of a calendar long call spread, if first(short one) is expiring worthless?? Thank you!
The way you presented this topic was very well done. Hope to see more option strategies explained in the same manner. Good Job!
OMG! The way you explained it was clearer than Mike’s Whiteboard from TastyTrade. Thank you so much!
HAhah he's my brother so I'll let him know I won this battle :D
You’re an awesome teacher, thank you.
The last minute was the most informative.
Thats for the info. I like going to you to have things explained. My knowledge is increasing everyday about options. they are very exciting..
Great job Chris on your explanations + visuals. Really concise and clear. Well done and thank you.
Thank you for your comment! I appreciate it.
Wow... this video is so clear. thanks. whoever created this strategy is a genius.
Thanks for watching!
Nicely presented but wish you had touched on the risks and how to perhaps control those risks with rolling
congratulations ' on 300k subs getting close- more then tastytrade
Tasty trades is interesting but over produced. 10 minutes of info in a 30 minute video
Excellent explanation!
I like all the videos you do on options, especially Iron condors, vertical credit spreads and others. However, I would like to take a covered call I sold which is expiring on 2-24-23 and run it out to a further month. After watching your video on calendar spreads, (buying a call and selling the next month), I believe it would cancel out the 2-24-23 covered call that I previously sold and roll it out to the next month, ( at the same strike), just give me more time.
Nice job, great video. Appreciate the slides as well
Thank you! I'm glad you enjoyed the video.
-Chris
so well explained!
outstanding ,, many thanks
You are welcome!
Had to watch at .75 speed XD, good presentation!
Haha I'll do my best to slow it down in future videos. Thanks for the comment!
@@projectfinance I think you are at mean speed cause I had to speed up by 25%
This was a great comment because I saw this and was able to try it and understand the material better. Thanks ! Great video Project options guys !
Solid presentation!
Thank you, Mark! I'm glad you liked it.
-Chris
Predicting that the stock price would remain relatively the same price at the date of expiration, why would one choose to go with the calendar spread trading strategy over iron condor trading strategy?
If a stock has a steady rate of growth over a period of 6 months, you could time where you think that price would be in 6 months and then sell it shorter every month at the same price. If it expires but stock price went up then you get that premium from the short for free and your long call increases in value again, you then do the same thing or take your profits, have to adjust as needed but this wins if the same price stays the same or goes up. Prices can either go up, stay the same or go down so this gives you a better chance of being right and your initial investment is immediately lesser by selling the shorter call
and what if the stock price shoots pass the strike price i.e. $180? you would still be profitable right as the long call will grow faster than the short call?
Hey there, very good presentation, insightful and well constructed!
Thank you!
Nice presentation sir,
What happens if the stock price goes above 170 before the short expiration option. You never talked about the down side of trading these. This is a way to buy a cheaper call but I need the catch.
The catch is that it's not a bullish strategy like buying a call option. If you buy a call calendar, you need the stock price to be somewhere near the strike price as time passes. If it rockets higher and through the strike price, you'll lose money. I'll need to redo this video!
If you have a call option at the same price or higher It will cancel itself out, And since the short option expires first then you won’t have any assignment risk after that.
when u do a long calendar spread, there is a profit zone, with your strike 170 somewhere in the middle. if your short call goes beyond the upper break even point, you will lose money. when this is about to happen, you can consider to roll the option out and up. The purpose of rolling the option up is to increase the upper break even point. but in doing so, you may have to buy a slight prem to cover this new rolling position.
My first long calendar spread I’ll be going into this week (today JULY 27th) ... Sherwin Williams. Sell Aug 21 640 call . Buy Sept 18th 640 call. Looking to buy at a price of $6.
Ive traded basic options for sometime . This is my first option of this type .
Let’s see how it works .
Did it work?
How did it go ?
Utmost thanks and blessings!
well presented.
Thank you 👍🏻
No problem 👍
What if the short call gets assigned?
can we sell monthly call and buy a weekly call of the same strike in this strategy what will be the result.
No, it's the opposite you have to buy a long call and sell a short call example you buy call with a expiration date 2 moths out, and sell a call with exp a week out and then you start rolling and rolling forward till last week of the long call
What happens when the short call expires? Does the entire position close? Or are you left with the naked long call to do with as you please?
Yes, you'll be left with the long call. But keep in mind this is if the short call expires worthless / out-of-the-money. If it is in-the-money (stock is above the call strike), then you will end up with -100 shares (short 100 shares of stock) if you allow the short call to expire in-the-money.
So have to close it before @@projectfinance
can i do this strategy on thursday and close out on thursday and just take my credit and profits?
Amazing presentation!
Thank you!
Do you just let this calender spread expire on its own or how do you sell for a profit if it is up a lot of money before the expiration on the short term
Always sell a day before to avoid any crazy surprises. Better for peace of mind & locking in profits. May be save 10-20% of options for the last day, but i wouldn't let it go to expiry. Just get rid of them yourself & be trouble free. There seems to be some crazy returns on these. I will know on monday if all worked correctly. Should be up 20% minimum
Hi, can i keep the second leg of a calendar long call spread, if first(short one) is expiring worthless?? Thank you!
Yea that's how you make the best money with this strategy
do u have to buy the long call first? then sell the call to create a spread?
Yes but you can do this at the same time. Normally you can hold down your control button and manually choose each option strike.. Or you can set your option type to whichever you want (vertical, butterfly etc)
GOOD
What about the short calendar spread - what is the motivation to do one?
THIS IS TRADED S ONE ENTITY. THE SHORT OPTION WILL BECOME ZERO AT ITS EXPIRY & THE LONG WILL NEED TO CONTINUE. WILL I BE CORRECT IN THIS THINKING OR THE SPREAD DIES OUT AT THE EXPIRY OS THE SHORT OPTION, PL?
assuming short option expire worthless, the long dated option trade is still valid. You then roll other short call and repeat the process until the time u wish to close your long dated option.
Does anyone know where I can find iv rank or iv percentile for german stocks? Thanks
Wouldn't you also receive the money the $4.80 was left on the long call?
Yes, when you close out the calendar spread you will be buying back the short call (in this case, paying $1.56) and selling the long call (receiving $4.80). The net result is that you receive $3.24. With an initial purchase price of $2.25 the profit would be $0.99 on the spread ($99 in actual profits per calendar).
I hope this helps!
-Chris
Careful from IV , especially in SPX 😈
Great video explaining a strategy I want to use but cannot seem to fully understand :-(
Is this strategy the same as what is referred to as a 'poor man covered call'?
It operates on a similar principle, but I don't think you could do it on a platform like robinhood. You sell calls for income once a week, but instead of backing it with 100 shares for collateral, you collateralize your right to buy 100 shares. The poor man's covered call uses a diagonal option, where the back month option has a different expiration date. Your max loss in this case is the difference between strikes AND the difference in theta, but this can be priced as the debit premium to enter the spread. If you purchase the ITM call 6 months out, you can sell covered calls OTM or ATM once a week for 26 weeks. Whenever your front month expires worthless or you buy out at take profit, you keep the premium from your front month OTM short call. If you paid $n premium for an ITM call 6 months out, you profit if your weekly premiums earned from your covered calls is > n. Each covered call must have an average premium collected of $(n+1)/26 to break even on the position. After your last short call has been sold, you have a deep itm long call with no obligations and little to no downside risk. If I've sold 25 calls using my long ITM back month as collateral and not been exercised, I'm only n/26 dollars away from breaking even. The next day, there's good news and the stock price shoots up. long Calls have unlimited upside, so I call my broker to exercise the long call for profit, and now I have a lot more money than I started with.
poor man covered call would be a long diagonal spread, not a long calendar spread.
Hey Chris, I have a question about put calendar spreads that I hope you can help me out with. Essentially, I paid a net debit of 1.6k for a put calendar spread on BAC for $40. It was going fine today until around 3, I went from $4,000 in my portfolio to -$8,000 portfolio value. I thought the most I could lose was the premium that I paid to get in the trade? Please help Chris, I’m panicking.
What ended up happening if you don’t mind sharing?
Sadly, Chris did not reply to you. Can you tell us how did it end up ? That seemed stressing.
What Happens If Short Leg of Bear Put Spread
or Calendar Spread Exercised,
before expiration on american style option
and you are not prepare for it???
in the case of a calendar spread, if your short leg is excercised, you must excercise your long leg to cover the short leg, otherwise you have an open long leg that is losing theta. in the case of a short put spread if your short leg is excercised, you should close your long leg anyways because that is the point of maximum profit, by leaving it open you risk losing profits.
Will this strategy do well with SPY?
It can do well if SPY remains range-bound and/or trends towards your calendars short strike. You can, for example, buy call calendar spreads with strike prices above the stock price. If SPY was at 220, you might buy a 230 call calendar, in which case you're anticipating SPY to drift higher towards $230 throughout the duration of your trade.
I wish you would have gone into how the brokerage reserve is calculated
depends on the broker. this is equivalent to collateral costs
did you say buy high and sell low???? on vertical
OK what if you combine both -so technically for earnings play Or for a longer-term leap or underlying that you’re very bullish on you can do a vertical spread with a short call That has higher strike price expiring about Halfway through the far expiration on your long call . This allows you to lock in today’s price If the IV is low also get a credit to lower cost basis And then you’ll just have a standard long call without the annoyance of that Limiting vertical spread profitability ceiling.Great If you anticipate that underlining will remain below the strike price before the short call expires but then raise above your initial lower strike price on your remaining contract. Does it make sense or am I just Watching too many of your videos?
What I don’t get is how do you sell a option that you don’t own or haven’t bought ?
All these videos keep saying the say thing @2:03
It says you buy a option in a vertical and then sell a option In the vertical...
But never explains how you’re selling a option that you didn’t purchase?
I put money to buy a stock at particular price. That is selling put option.
Sorry, i know you may have had someone ask you this question: what's the best way to close this strategy? Do you wait for the short call to expire?
hopefully the short call u sold expires worthless, u then roll another short call and collect further prem. repeat this process until the time u intend to close the long dated option, which is typically ~30d before DTE. Within the 30d DTE, the theta decay of the long dated option will be very high and selling call during this period is not worthwhile.
@@JK-vb9ps thank you for the response and one more last question if you don't mind.
what if the price of the underlying stock surpass the short leg by the expiration date and get assigned? In this case I'm assuming you'll have to sell the long in order to settle?
Meaning, this would be the worst case?
Thank you
@@gustavosh.5147 Before that happens I would roll the short call option out and up (meaning a higher strike).
@@JK-vb9ps thanks
@@JK-vb9ps does that mean buy the option you are trying to sell? would you lose a bit of money in this process?
maybe just do a short calandar spread on tesla stock
Why don't you just use a vertical?
👌
Theta-gang HO!
Yeah! Im from that gang two! But instead, why don't sell the long and buy the short?
One feedback, It seems that you are in hurry and explaining so fast that at many places i missed the concept. Please do note that you may be an expert of your field but if you explaining or teaching something then you have to match your speed with the thinking process of your students or audience. So that they can also grasp the concept in one go.
which is missing here..
Thanks for the feedback! This is an old video and I've improved with the rate of speech since then, which you can see by checking out some newer videos. I always pay attention to my rate of speech when recording videos these days!
this strategy does not require lots of capital. It means that win probably is not high.
It only works if long call is at the right place (in high deltas) at the end of the short call.
Looks like another gambling strategy.
Actual with only taking small profits win percentage is around 83% because you are able to take advantage of the fact that the stock can move up stay the same or down in relative amounts usually around the 9% mark in just a week most indexes dont jump around 10% every week so trading something like SPX with around 2000 capital per trade can easily net 200+ on a 10% that you can get in just a matter of a few days betting that it wont move more than 9% one way and 9% the other way that means you have 18% movment ability and still can profit especially if you are able to be on vegas side by purchasing the up front call with more iv than the back month call. I would call it a gamble if you have never traded options or complex strategies and then to go think you can trade one of these on a huge index that would for sure be gambling but if the trader already trades spreads and understands how dangerous the short side of the calendar spread can be they can most likely never be assigned due to mitigation of risk properties such as EXT value of the short or write call and the day till EXP is important also if the stock is near EX dividends is huge sometimes its best to stay away from ER release on calendar calls but in most instances it can be a worthy spread to implement on earnings.
One constructive criticism that applies to all the videos I have seen from your channel. Try starting a sentence without the word “now”. It is like a nervous twitch that you may not even notice but I’ve spoken to a couple of people who find it .... off-putting... for the viewer.
Thank you. I have noticed that myself and I will work on that in future recordings. A lot of my past videos are pretty bad looking back on them now.
The word "so" can also be left out at of the beginning of sentences.