Contents

PUT Calendar Spread

PUT Calendar Spread is created by Selling a current month or current week PUT and Buying a next month or next week PUT of the same strike. The current month options decay faster than the next month options. You are taking advantage of the faster time decay of the near or current month options.

Trade Set-Up

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Sell Current Month or Current Week PUT

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Buy Next Month or Next Week PUT

Naked Put-Finvezto

PUT Calendar Spread

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Entry Checklist

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Market Outlook
  • Neutral Outlook
  • Price should be trading between a true support and resistance zone
  • Ideally you want price to remain in a range
  • Volatility
  • While entering the position, it is better if the volatility is low
  • As the near month or current month option expires, if the volatility increases it will benefit you as the value of the far month or next month options will increase.
  • Open Interest
  • Equal build up of PUTs and CALLs at support and resistance levels is ideal as we want price to stay in a range.
  • Strike Price
  • Sell At-the-money strikes if you expect price to have less movement
  • Sell Out-of-the-money options if you expect price to be volatile within the range
  • Positional or Intraday?
  • Holding positions overnight is recommended as you can capture overnight decay.
  • Intraday returns are lower than straddle and strangles.
  • Risk Profile

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    Risk [Loss]
  • Maximum Risk is limited. But still, position needs to be managed with stop loss of 1-2% of your capital.
  • Reward [Profit]
  • Maximum profit is limited. Maximum Profit can keep on changing during the period, depending on the increase in volatility. But, it is limited.
  • Break Even Point
  • In this strategy, there is no exact formula to calculate break even point. But the break even points lie outside the srike chosen on either side
  • Options Greeks Impact

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    Time Decay Impact [Theta]
  • Time decay is your friend
  • All Calendar spreads take advantage of faster time decay of the current month contract compared to the next month contract.
  • Volatility impact [Vega]
  • When the near month options expire, you want the volatility to go up. This will ensure that the far month options that you bought will be trading at a higher premium.
  • Trade Management & Exit

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    Stop Loss
  • Stop Loss should be set in such a way that Risk is limited to 1-2% of your entire capital
  • Roll your position first if applicable before exiting through Stop Loss
  • Exit Conditions
  • Exit when price breaks the trading range
  • Exit when your loss is 1-2% of your capital
  • A Word of Caution

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    • Be cautious during the last 2 to 3 days of expiry. All the time decay gains that you got over several days can be erased in a jiffy.
    • Trade only on Indices as they are less volatile.