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Put Calendar Spread Video Tutorial 6/5/2009)

This is a trade I outlined in a series of video tutorials.

Calendar Spread trade setup on the SPY

SPY Aug/June 90 Put Calendar Spread

Credit/Debit -$2.55
1. Exit if I can lock in  a 40%
2. Roll/exit if within 5-7 days of front month expiration

Why this strategy?

I outlined my basic motivation for this trade in the first video shown here. I was expecting to see a bit of a pullback on SPY, maybe to the $90 level or lower.

Position sizing

This part of of the video tutorial covers position sizing, entering the trade, and planning exits.

Update 6/12/2009

So far, no pullback has emerged. The plan at this point is to wait until Monday and if no pullback, then exit.

Calendar Spread exit evaluation

Update 6/16/2009

Monday there was a nice pullback and Tuesday I went ahead and did the roll of the short June 90 to July and took in $1.60 in credit.

Update 6/24/2009

Nice pullback but we are still several weeks away from expiration. With SPY being right at the short strike, but 22 days until expiration, there's just too much value in the July short strike and that affects our ability to close the spread out for a decent price. I'd like to get at least $1.60 if possible.

This video shows how to do some 'what if' scenarios around time erosion, price movement and volatility changes to see what this spread could be worth under different conditions.

Update 7/6/2009 - Trade exit

I closed the trade on Tuesday right after a long 3 day weekend.  Even though there was still around 12 days until expiration, I felt this was a good time to close the trade out.  I received $1.63 for the final roll/close making the total profit in the trade $3.23. With an initial debit of $2.55, that's a $.68 profit or 26.6% ROI.

Here's my final video wrapping the trade up.

Note: This trade discussion is for educational purposes only. I am NOT making any recommendations on the trade or the underlying stock or ETF. If you decide to follow this trade, please do so in a paper trading account. Trading options involves risk and some options strategies can result in losing more than the original amount invested.

thinkorswim, Division of TD Ameritrade, Inc. and Success With Options are separate, unaffiliated companies and are not responsible for each other's services and products.

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