A strangle and calendar spread


A strangle and calendar spread


In finance, a calendar spread (also called a time spread or horizontal spread) is a spread trade involving the simultaneous purchase of futures or options expiring on a particular date and the sale of the same instrument expiring on another date. This option strategy is profitable only if there are large movements in the price of the underlying asset. It is a limited profit, limited risk strategy entered by the options traderwho thinks that the underlying stock pricewill experience very little volatility in the near term.

Calendar Straddle ConstructionSell Online Trading Memberships StraddleBuy Long-Term StraddleLimited Profit PotentialMaximum gain for the calendar straddle is earned when the stock is trading at the strike price of the options sold on expiration of the near term straddle. At this price, both the written options expire worthlesswhile the longer term straddle being held will suffer only a small loss due to timedecay.Note that maximum profit is limited only on or before expiry of the near term straddleas the options trader has the option of holding on tBetter Together.

Never miss a trending story with yahoo.comas your homepage. Every new tab displays beautiful Flickr photos and your most recently visited sites. Long Strangle ConstructionBuy 1 OTM CallBuy 1 OTM PutThe long options strangle is an unlimited profit, limited risk strategy that is taken whenthe options trader thinks that the underlying stock will experience significantvolatility in the near term. Long strangles are debitspreads as a net debit is taken to enter the trade.

The charts showed that AAPL was consolidating in a narrow range or wedge pattern and was looking ready for a breakout. At the time I present two different trade ideas for AAPL that would benefit from a breakout, but were not dependent on correctly picking the direction of the breakout. AAPL Chart on June 14th, 2012So here we are almost 3 weeks later. The current implied volatility chart and stock chart of AAPL are shown below. DescriptionShort one call option and long a second call option with a a strangle and calendar spread distant expiration is an example of a long call calendar spread.

The strategy most commonly involves calls with the same strike (horizontal spread), but can also be done with different strikes (diagonal spread). DescriptionThis strategy typically involves buying an out-of-the money call option and an out-of-the-money put option with the same expiration date. OutlookThe investor is looking for a sharp move in the underlying stock, either up or down, during the life of the options. SummaryThis strategy does best if the stock price moves sharply in either direction during the life of the options.

MotivationThe strategy hopes to capture a quick increase in implied volatility o.




A strangle and calendar spread

A strangle and calendar spread


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