People trading weekly options are always looking for option methods to trade with, but how does one selected a method based on market trend? In a bearish market, the Calendar Put is a Choice Spread that'd be good for any trader to learn. Similar to a covered call (if one could trade these that way) the Calendar Put is a pleasant Option Strategy. As with the Calendar Call, a long-term Put Option is being acquired here rather than the stock. The Calendar Put has a low original investment which is sexy and using Weekly Options, this plan can increase the maximum yield trough the life of the trade considerably!
The Calendar Put Option Strategy involves purchasing one Put Option (OTM) and further out on the Calendar. Each Put Option are often purchased at the same strike cost. Then, using weekly options you sell the same strike price option on a regular basis. This creates a pleasant revenue stream and if done properly can also yield a nice return.
You make cash as the stock remains below strike cost of the weekly option you sold, the Put will expire pointless and you keep the premiums. You can then sell another put option the next week.
With this tactic, what will happen if your option trade does not go your way you would like it to as the stock rose above the strike price? The trade should be unraveled. It is not tough to do. If the once per week option that was originally sold is exercised, all you've got to do is sell the long Put Option originally acquired (hopefully at a reasonable profit), use the results to buy the stock and turn right around and deliver it at strike cost. You must profit from the premium of the weekly option sold, and the uplift in cost of the longer term option acquired.
You create a very nice weekly revenue against a long term position while the market trend is neutral to bearish. Your risk is limited to the cost of your original investment in the long call (minus the profits from sales of shorter term weekly options). Your profit will be the premium from the weekly options sold (minus the debit of your original investment).
Time decay is your friend here and can work to one’s advantage in this type of trade, but timing is important. Glaringly time decay will end the life of a weekly option but the timely unraveling of the option method is significant also. One’s original investment in a long-term option also will be subject to time decay. So if you are looking for maximum profits, the first option needs to be sold in a timely manor also to maximise on its value.
When you start to put this trade together, if the stock is more neutral, purchasing nearer to (at the money- ATM) long term is a good method. If the stock is bearish, a little further (ATM) would be superior.
Example:
– The SPY is trading at 118.22.
– Let's assume you purchase a Sep Quarterly that expires Sep 30th with a strike cost of 115, the cost is $3.05.
– So you begin with a debit of $3.05 in your trade.
– This gives you four trading weeks to sell the 115 Weekly Put Option
– Presently it is trading at $1.21.
You can't absolutely project the value of each weekly option, but if the SPY stayed range-bound for that period, you would sell 3 weekly options for $1.21, ($1.21 x 3) = $3.63
Then, sell the first Quarterly Option that will have decreased in worth now to about $1.20.
Your earnings ($3.63 + $1.20) = $4.83
Subtract this from your debit and you have got your profitability. ($4.83 – $3.05) = $1.78 potential profit for the trade.
A Calendar Put is a way for you to generate a monthly income earning profits from range-bound or a touch bearish leaning stocks.
John Mylant is the chief of Weekly Options. He's in serious demand as an investment coach. Training traders all around the planet the only way to grow their portfolio, he uses options trading strategies that are safe, conservative, and allows for quick steady enlargement with tiny culpability. Interested in successfully growing your portfolio using options – safely, efficiently, and quickly?