Calendar Call is a bullish option strategy with the possibility of profiting
in two different expiration months.
option-info and options-graphs sites:
Outlook: Neutral to bullish on stock price movement, and Implied
Volatility currently low or normal. The expectation is that gains will
be made if the stock does nothing, or rises, or IV increases.
Sell call(s) using the strike price nearest the current stock price,
and a near term expiration date, and buy two call(s) for each call sold,
using the same strike price and an expiration date further out in time.
when: Stock price stays near current stock price, or rises.
when: Stock goes below the breakeven point, or before expiration
if volatility falls too much.
Loss : Limited to the initial debit.
Calculation: An options calculator or graphing software is necessary
to calculate because the breakeven depends on the volatility.
compared to stock: Ability to profit from no stock movement as well
as a rise in price, much less capital required, "built-in" stop
compared to stock: Greater risk of 100% loss of the capital invested,
no dividends, limited life.
after entry, increasing implied volatility is positive.
after entry, the passage of time is positive near the short strike
price, negative at prices higher or lower.
Requirement : None. Initial debit must be paid in full.
See the Ratio Calendar Put
if neutral to bearish.
- If you
were purely bullish, just buying a Long Call would be less expensive
than this position. However, when using a Long Call the stock must rise
enough to overcome the initial debit before the position shows a gain.
The Ratio Calendar Call can gain with no stock movement.
Volatility can have a big effect on this position. If the IV is high
when you enter this strategy and then drops, the position will likely
be under water until expiration, unless there is a good move higher
in the stock price. It is much better to enter when the IV is low. That
will give an opportunity to take gains early if the IV rises.
- This strategy
has a psychologically difficult feature, which is that the position
will look like a loser right up until expiration day if the stock price
stays near the short strike. This is because the strategy has two long
calls losing some time value every day the stock does nothing, and one
short call that will not lose its entire value until it expires.
- You might
use this strategy if you wanted to be bullishly positioned for an earnings
month, but the month before the earnings report you did not expect the
stock to move. By selling the short call, you can make some premium
to help pay for the two long calls, and possibly profit in two different
variations of Calendar Calls can be used if you have a near-term more
neutral or bullish or bearish opinion on a stock or ETF, and want to
target a "sweet spot" at the current price, or higher or lower
than the current price. See Calendar
Call, ATM for a neutral strategy, Calendar
Call, OTM for a bullish strategy, and Calendar
Call, ITM for a bearish strategy.
ratios can be used if you are more or less bullish. You could buy 3
long calls for every 1 short, or 3 long and 2 short, etc.
this is a neutral to bullish position, the trader is expecting the stock
to hold steady or rise. If the stock falls, it is usually wise to exit
the trade, taking less than the maximum possible loss. Using the graph
at the top of the page, you might exit with a loss of about $75 if the
stock fell to about 49, and your loss would be about one-fifth the maximum
possible loss, which is the entire debit of $384.
- If the
reason for entry of the trade was to gain from the stock going nowhere
in the near term, but hold long calls in case of a bullish move in the
long term, then the trader would attempt to hold the position until
expiration, assuming the short calls have a chance of expiring worthless.
Then the long calls can be held with the expectation of a bullish move,
like any other long call position. Even though you collected premium
from the short calls, you should not expect to have any sort of a "bargain"
on your long calls, because time has passed since you bought them, and
the stock has not moved yet.
- A trader
can think of this position as a regular ATM Calendar Call plus a Long
Call. By checking an option graph of the regular Calendar Call, the
trader can make note of where he might use a stop loss if the stock
rises. If the stock does rise to that level, the Calendar Call can be
closed out to avoid further damage, while still holding a Long Call
for further gains.