Calendar Put is a bearish strategy that also allows for a slight upside
option-info and options-graphs sites:
Outlook: Neutral to bearish 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 falls, or the IV increases.
Sell put(s) using the strike price nearest the current stock price,
and a near term expiration date, and buy two puts for each put sold, using
the same strike price and an expiration date further out in time.
when: Stock price stays near current stock price, or falls.
when: Stock goes above 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 short stock: Ability to profit from no stock movement
as well as a drop in price, much less capital required, "built-in"
compared to short stock: Greater risk of 100% loss of the capital
invested, limited life.
after entry, increasing implied volatility is positive.
after entry, the passage of time is negative.
Requirement : None. Initial debit must be paid in full.
See the Ratio Calendar Call
if your opinion is "neutral to bullish".
- If you
were purely bearish, just buying a Long Put would be less expensive
than this position. However, when using a Long Put the stock must fall
enough to overcome the initial debit before the position shows a gain.
The Ratio Calendar Put 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 lower 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
puts losing some time value every day the stock does nothing, and one
short put that will not lose all it's value until it expires.
- You might
use this strategy if you wanted to be bearishly positioned for an earnings
month, but the month before the earnings report you did not expect the
stock to move. By selling the short put, you can make some premium to
help pay for the two long puts, and possibly profit in two different
variations of Calendar Calls or Calendar Puts 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 bearish. You could buy 3
long puts for every 1 short, or 3 long and 2 short, etc.
this is a neutral to bearish position, the trader is expecting the stock
to hold steady or fall. If the stock rises, 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 rose to about 51, and your loss would be about one-fifth the maximum
possible loss, which is the entire debit of $371.
- If the
reason for entry of the trade was to gain from the stock going nowhere
in the near term, but hold long puts in case of a bearish move in the
long term, then the trader would attempt to hold the position until
expiration, assuming the short puts have a chance of expiring worthless.
Then the long puts can be held with the expectation of a bearish move,
like any other long put position. Even though you collected premium
from the short puts, you should not expect to have any sort of a "bargain"
on your long puts, 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 Put plus a Long
Put. By checking an option graph of the regular Calendar Put, the trader
can make note of where he might use a stop loss if the stock falls.
If the stock does fall to that level, the Calendar Put can be closed
out to avoid further damage, while still holding a Long Put for further