Calendar Spreads. Presented by: Nicole Wachs

Transcription

1 Calendar Spreads Presented by: Nicole Wachs of Calendar Spreads All rights reserved.

2 Disclaimer Options involve risks and are not suitable for all investors. Prior to buying or selling options, an investor must receive a copy of Characteristics and Risks of Standardized Options. Copies may be obtained by calling TRADEKING at (877)495-KING or visiting In order to simplify the computations, commissions, fees, margin interest and taxes have not been included in the examples used in these materials. These costs will impact the outcome of all stock and options transactions and must be considered prior to entering into any transactions. Investors should consult their tax advisor about any potential tax consequences. Any strategies discussed, are strictly for illustrative and educational purposes only and are not to be construed as an endorsement, recommendation, or solicitation to buy or sell securities. Past performance is not a guarantee of future results.

3 The BRIEF Sales Pitch All slides have been created using These features are standard with any account We offer: No account minimums No maintenance, monthly, or inactivity fees of any kind Stock trades $4.95 Option trades $4.95 plus 65 per contract Special Promotion for IEN members: Open an account and receive TradeKing s Option Playbook NICOLEPB

4 Calendar Spreads Calendar Spreads All rights reserved.

5 Topics to be covered Calendar Spreads 1. What is a calendar spread 2. Why do we trade calendars 3. How do we research a calendar spread 4. Different types of calendar spreads 5. Concerns for this trade

6 What exactly is a Calendar Spread?

7 But first.

8 Let s look at the Covered Call

9 Covered Call Trade Best use is with a stagnant or mildly bullish stock or underlying Purpose is to capture time premium / time decay 1. Buy 100 shares of stock 2. Sell 1 OTM near term call to collect premium Best outcome: Stock rises in value, just shy of OTM call strike at expiration Worst outcome: Stock gaps down significantly

10 Covered Call Trade Pro: stock may pay a dividend easy strategy to understand stock does not expire max gain is wider area Con: high amount of capital high amount of money at risk inadequate protection in down market

11 How does this pertain to Calendar Spreads?

12 Covered Calls & Calendar Spreads Calendar Spread: Best use is when outlook for the stock or underlying is stagnant, neutral, or sideways Purpose is to capture time premium / time decay 1. Buy 1 longer term call (instead of stock) 2. Sell 1 OTM near term call to collect premium Best outcome: Minimal movement between now and first expiration Worst outcome: Increased fluctuation in stock price Large gaps up or down

13 Calendar Spreads Pro: significantly less capital needed vs. covered call significantly less money at risk limited risk exposure in a down market more versatile Con: call buyers do not collect dividends more abstract strategy to understand two expiration dates max gain is narrower range

14 What exactly is a Calendar Spread?