SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Using Bullish Calendar Spreads to Profit on MSFT Stock


A calendar spread is an income trade where the trader sells a near term option and buys a longer-dated option with the same strike price. Usually this is done with monthly options, but it can also be done with weeklies. They are long volatility trades so can be a nice addition to a portfolio as a way to offset some short vega.

A typical set up is using calls and placing the spread at-the-money, but traders can also do directional calendars, and I’ll share a recent MSFT example below.

 

One nice feature of calendar spreads is that the maximum loss is always known in advance. The trade can never lose more than the cost of entry or the debit paid.

 

The maximum profit however, can be a little tricky and the best we can do is estimate it because we don’t know in advance how the back month option will be impacted by changes in implied volatility.

 

When trading neutral calendars, you want to look for a stock with low implied volatility that you think will remain stable over the course of the trade.

 

If I’m trading an at-the-money calendar, I set adjustment points around the breakeven lines. If the stock reaches either of these level, but hasn’t hit a stop loss, I will either reposition the calendar or turn it into a double calendar.

 

Let’s take a look at a recent bullish calendar trade on Microsoft.

 

On June 8th, the stock was trading around 188 and showing nice accumulation on the chart. My thesis was that it was likely to break above resistance at 190 and head up to around 195.

 

As such, I entered a bullish call calendar at the 195 strike with 11 days to expiry. The total cost for the trade was $514 plus commissions and I set a profit target of 30% and a stop loss of 20%.

 

Here are the details:

 

Date: June 8, 2020

 

Stock Price: $188.20

 

Trade Set Up:

  • Sell 2 MSFT June 19th, 195 calls @ $1.13
  • Buy 2 MSFT July 17th, 195 calls @ $3.70

 

Premium: $514 Net Debit

 

image.png

 

Two days later, MSFT had rallied to 194.58 and the trade was up $245 or 47.67%. They don’t always work out this well, but this was a nice return on a small amount of capital at risk.

 

image.png


One nice thing that happened with this trade is that the volatility in the back month rose from 25.5% to 29% which gave the trade a nice little boost.

 

I recently put together detailed guides on calendars and double calendars if you want to learn more about these trading strategies.

 

This was a short-term trade but some traders will also do what’s called a campaign calendar where they buy a six month call and sell multiple months’ worth of calls against it.

 

Bearish put calendars are also a nice trade if you think a stock is going to drop or you want some general protection against a falling market. The beauty with put calendars is you gain due to the delta, but you also gain due to the rise in volatility. Of course, this could also go the other way if the stocks rises.

 

A few quick tips if you’re thinking about getting started with calendar spreads:

 

  1. Stick with highly liquid underlying stocks and ETF’s. Stocks that have a tight bid-ask spread will be much better in the long run because you will be able to get better fill prices.
     
  2. Start with small trades and never risk more than you can afford to on any one trade. Position sizing should be no more than 2-5% of your account size.

 

Happy trading and feel free to reach out if you have any questions.

 

Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. He likes to focus on short volatility strategies. Gavin has written 5 books on options trading, 3 of which were bestsellers. He launched Options Trading IQ in 2010 to teach people how to trade options and eliminate all the Bullsh*t that’s out there. You can follow Gavin on Twitter. 

Related articles

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Subscribe

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Short Gamma vs. Long Gamma

    Gamma is one of the primary Options Greeks, which measure an option's sensitivity to specific factors that could affect an option price. Despite traders hyping up several different Greeks and second-order Greeks like "Vanna" and "charm," there are only four primary Greeks that you need to be familiar with to understand options trading.

     

    By Pat Crawley,

    • 0 comments
    • 140 views
  • 7 Steps To Take Your Investments To The Next Level

    Investing is one of the most important activities you can do for yourself. In today's world, it's becoming increasingly important for individuals to take control of their financial future and ensure that their investments are working in their favor. So if you're looking to take your investment strategy up a notch, there are seven essential steps you should take.

    By Kim,

    • 0 comments
    • 693 views
  • SteadyOptions 2022 - Year In Review

    2022 marks our 11th year as a public trading service. We closed 147winners out of 215 trades (68.4% winning ratio). Our model portfolio produced 90.5% compounded gain on the whole account based on 10% allocation per trade. We had only one losing month in 2022. 

    By Kim,

    • 2 comments
    • 1,030 views
  • Steady PutWrite 2022 Year In Review

    The Steady PutWrite service consists of two separate strategies available to subscribers known as Steady PutWrite and ETF BuyWrite. Steady PutWrite sells monthly at the money puts on equity indices targeting total notional exposure of 125% and then invests collateral in bond ETF’s.

    By Jesse,

    • 1 comment
    • 531 views
  • How Much Do You Need to Start Trading Options?

    Theoretically, anyone can trade options. After all, there are listed options that you can buy for as cheap as $1.00. So what is the right amount of money you need before you can officially dip your toe in the water and give yourself a fair shot at becoming a profitable options trader

    By Pat Crawley,

    • 0 comments
    • 891 views
  • Options Strategies for Small Accounts

    Ask a handful of traders what they deem a “small account” to be and you’ll get probably get a few different answers. For the sake of this article, we classify a small account as having less than $5,000. There’s a number of obstacles you run into trading a small account, like the options in certain underlyings being too expensive for you to trade, as one example.

     

    By Pat Crawley,

    • 0 comments
    • 886 views
  • 7 Things I Wish I Knew When I Started Trading

    Options Trading can be very exciting and rewarding. But you should not be trading options before learning at least some basic facts about options. Options are very different from stocks.  This article presents 7 basic options trading facts that every options trader should know. Don't start trading of you don't understand them.

    By Pat Crawley,

    • 0 comments
    • 891 views
  • How LEAPS Differ From Short-Term Options

    LEAPS stands for Long-Term Equity Anticipation Security. Which is just a long-dated option, typically referring to those with expirations more than a year out. There’s no technical difference between LEAPS and shorter-term options other than the expiration date. They’re traded on the same exchanges and have the same rules surrounding margin and whatnot.

    By Pat Crawley,

    • 0 comments
    • 875 views
  • What Is An Implied Volatility Crush

    IV (Implied Volatility) crush when the implied volatility of an option takes a nosedive shortly after the conclusion of a catalyst like an earnings report or corporate action. The uncertainty around a company’s earnings report (or other significant catalyst) drives option prices up in the lead-up to the announcement, and down following the announcement, once the uncertainty is gone.

    By Pat Crawley,

    • 0 comments
    • 804 views
  • Top features of NinjaSpread

    There are two main goals of the scanner: show you hidden opportunities and save a lot of time with automated scanning. Let’s see what the top features are and how NinjaSpread can help your trading life.

    By Gery,

    • 0 comments
    • 1,428 views

  Report Article

We want to hear from you!


There are no comments to display.



Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs Expertido