What is a put calendar spread? | OptionsANIMAL
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What is a put calendar spread?

Video Transcription

Okay folks, hello again. Casey Jensen here at OptionsANIMAL. Now we’re discussing a put calendar spread. Another good strategy to take advantage of a stagnant trend to slightly bearish. In this example, looking at a put calendar, let’s say we have a stock trading at 42. Well, what we’ll do first off is we’re going to buy a put option, and that acts as our primary instrument. In this case, I’ll go out to maybe the month of October, 90 days to expire, let’s say. Long put, strike price 40, October expiration 90 days, maybe it cost me $2 a share. Primary instrument, so I want the stock to drop for this instrument to make money. Now what I’ll do is a little bit of a hedge is I will sell, strike price 40 as well, but this time in the month of August. Now I’ll sell, get 75 cents for that. If you take a look, short put, strike price 40, August is my expiration, so 30 days. If the stock stays above 40 within the next 30 days, then I will keep this 75 cent short put premium.

Ideally what you’d want to have happen in this trade is you want a stock in the short term to stay above 40, stay pretty stagnant, and then after that, you’d like it to drop. You’ll keep this credit here, 75 cents. The most you can lose in the trade is a $1.25, so not a huge risk. Your reward is limited, so it’s a little bit different than the call calendar, because the call calendar’s reward is unlimited. The only reason it’s limited here is a stock can only drop to zero. They can’t go in the negative. Still, gives you a great upside potential in this trade. I like put calendars. Great way to look for aggressive growth using a put calendar.

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