Special

Topic
Option Strategies:
Calendar Spreads
Brian Houston, Nison Cer0fied Trainer™

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 Brian has been trading stocks for over 37 years, and
has devoted much of his trading career to trading
options and creating options strategies.

During that time, he has used Steve Nison's candlestick

patterns and education to continually improve his
knowledge and skills.

Recently, Brian has has also added Elliott Wave theory

to his set of trading tools, CFDs in Forex, Indices and
Gold.
Brian Houston,
Nison Cer0fied Trainer ™

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 Which Markets

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 Your Favourite Market

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 TRADER’S SLANG

•  Bull Market

•  Bear Market

•  Support

•  Resistance

•  Trend
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 TRADER’S SLANG

•  Windows – both rising and falling

•  Lagging Indicators!
•  Oscillator – MACD, Stochas0cs
•  Moving Averages
•  Candles and their colors

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 Leverage

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 The Mul1plier Effect
Where a Nison candle signal confirms another indicator
 Option Calendar Spreads
•  So what do we do and why?
•  What is your market move expecta0on?
•  3 Strategies –
•  In the Money (bearish market)
•  At the Money (neutral market)
•  Out of the Money (bullish market)
•  Do you see trends in the market?
•  What are the candles sugges0ng?

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Bullish Engulfing Pattern at Support

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 How NOT to use candlesticks

Oh my goodness! The
market rallied after the
shooting star!

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 Option Calendar Spreads

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 Option Calendar Spreads
•  LEAPS – Long dated op0ons Stock Price = $172.87
•  Balance price vs intrinsic value Minus Strike - 160.00
Intrinsic Value = $12.87


160 Strike = $28.00
Minus Intrinsic - 12.87
Time Premium = $15.13

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 Option Calendar Spreads

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 Option Calendar Spreads

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 Option Calendar Spreads
•  LEAPS – Long dated op0ons Stock Price = $172.87
•  Balance price vs intrinsic value Minus Strike - 160.00
Intrinsic Value = $12.87


160 Strike = $28.00
Minus Intrinsic - 12.87
Time Premium = $15.13

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 Option Calendar Spreads
•  Buy LEAP Call for $28.00
•  In The Money (ITM)
•  Strike price of $160
•  Sell a closer to Expira0on Call with a higher Strike
•  May 15, or May 175 = $4.00
•  June 19 LEAP cost $28.00
COST = $24.00

June 175 = $6.00

LEAP cost $24.00
COST = $18.00
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 Decision Time
•  Decide which op0on you wish to sell
•  Is the market in an UP, DOWN or SIDEWAYS trend
•  How long un0l we resume our trend direc0on
•  Big Ques0on: ITM, ATM or OTM
•  In the Money
•  At the Money
•  Out of the Money
•  This all relates to the expected market direc0on within a
par0cular 0me period!

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 Option Calendar Spreads
May 175 = $4.00 •  1st Ques0on –why did I reduce the June 175
LEAP cost $28.00 Call price from $8 to $6?
COST = $24.00

June 175 = $6.00 •  2nd Ques0on – is this exactly how it looks in

LEAP cost $24.00
real life?
COST = $18.00

•  3rd Ques0on – how do I make money and

when?

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 Option Calendar Spreads

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 Option Calendar Spreads
•  Over 0me your LEAP 0me premium will decay
•  The market is constantly moving – up, down and sideway!
•  Your LEAP will reflect this movement

May 175 = $4.00

•  Near the May Expiry of op0ons what happens? LEAP cost $28.00
•  CME moves up COST = $24.00
•  May op0ons did not expire worthless
June 175 = $6.00
•  Prior to expira0on, ROLL your op0ons! LEAP cost $24.00
•  Buy back the May Calls and Sell further out! COST = $18.00
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 Rolling Out your Options - Example
•  Buy back May op0ons for $1 and SIMULTANEOUSLY sell Call
further out
•  Into June maybe and for what price?
•  More or the Same?
•  What is the market expected to do next?
•  ITM, ATM or OTM

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 Rolling Out your Options - Example
•  May op0ons = $0 so you KEEP the $4 and they expire
•  Market has pulled back and therefore your LEAPS dropped
•  What is expected next as a Market move?
•  Are you at support?
•  As your May Op0ons expire, consider selling May 175 = $4.00
another op0on if appropriate LEAP cost $28.00
COST = $24.00
•  ITM, ATM or OTM
June 175 = $6.00
LEAP cost $24.00
COST = $18.00
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 Option Calendar Spreads
•  What is your new LEAP value with a market increase of $10

•  CLOSE OUT = Sell LEAP for $36 – 24 – 10 = $2 PROFIT!

•  Your LEAP will reflect this movement
•  ROLL up and out your SHORT CALL May 175 = $10.00
•  Pay $10 and receive back for JUNE $6 LEAP cost $28.00
•  LEAP has increased in value, and STRIKE is $10 higher COST = $24.00

•  I WANT CASH $$$ June 185 = $6.00
•  Roll up your LEAP by 1 or 2 Strike prices LEAP cost $24.00
•  How much can I add to my account? COST = $18.00
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 Option Calendar Spreads
•  Quick Summary

•  Roll up and out your SHORT CALL

•  Cost $10 – SHORT JUN 185 $6 = -$4
May 175 = $10.00
•  ROLL up LEAP CALL LEAP cost $28.00
•  Sell for $36 and Buy 2 Strikes higher = $28 COST = $24.00
•  Profit = $8
June 185 = $6.00
LEAP cost $24.00
•  Net Account Increase of COST = $18.00
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 Summary
•  The trade has lasted less than 1 month
•  Net into your account of $4
•  Your ini0al cost out of your account was $24
•  S0ll own LEAPS
•  Market is Trending upwards (check Moving Averages)
•  And you have how much ROI?

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 Added Tips
•  The BUY – WRITE or Calendar Spreads works amazingly well in
rela0vely flat markets with repea0ng paterns
•  You keep reducing your cost while you wait for the market to
move
•  If the market is trending upwards
•  Keep selling closer expira0ons OTM – OUT OF THE MONEY
op0ons
•  Hopefully they expire worthless
•  If your LEAPS are called, you should have reduced your cost
nicely and s0ll generate a profit

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 Option Calendar Spreads

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 Option Calendar Spreads

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 Option Calendar Spreads
GM = $24.00

LEAPS
What is your Time Premium
Jan ’21 $15 + $10 – 24 = $1.00
Jan ’21 $18 + 7.70 – 24 = $1.70

Jan ‘22 $15 + 11.25 – 24 = $2.25
Jan ’22 $18 + 9.20 – 24 = $3.20
What is your Market Trend?

Jun $22 + $2.85 – 24 = $0.85
Jun $23 + 2.20 – 24 = $1.20
Jun $24 All Premium = $1.62
Jun $25 All Premium = $1.10

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 Option Calendar Spreads
•  So what do we do and why?
•  What is your market move expecta0on?
•  3 Strategies –
•  In the Money (bearish market)
•  At the Money (neutral market)
•  Out of the Money (bullish market)
•  Do you see trends in the market?
•  What are the candles sugges0ng?

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 Calendar Trade Risk
•  Risk – simply the NET amount of money you have in the trade
•  PROVIDED you have sold the shorter dated calls at least as high
as your Long Call Strike price
•  Jan ‘22 $15 @ 11.25 MINUS Jun $23 @ 2.20 = $9.05

•  Premium on Jan ‘22 $15 = $2.25, sold Jun $23 $2.20

•  What is your 0me decay on the $2.25?
•  Remember your 45 day to expiry!
•  How many 1 month op0on contracts can you sell (over 0me)?

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 Option Calendar Spreads

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 Rolling Mid-Month
•  We see GM stock drop to a nice support area but we s0ll have 0me
before our op0ons expire
•  What do we do?
•  Why not buy back your op0ons!
•  Jun $23 $2.20 which now have a week or so remaining
•  Stock Dropped!! So our value has dropped!
•  Expected buy back at $0.50 to $0.75
•  Profit to date of $2.20 – 0.75 = $1.45
•  Your LEAP now starts to increase with the market rise and you can
roll out your close dated op0on as and when the signals are present

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 Option Calendar Spreads

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 Calendar Spreads - PUTS
•  This works exactly the same with PUTS
•  Buy a longer dated (LEAP), ITM of a PUT
•  Sell a closer dated expira0on month PUT
•  Ideally OTM
•  If the market con0nues dropping, con0nue rolling out your
close dated op0ons
•  Roll out the LEAPS if you wish for some realised gain / cash
•  Close the en0re trade when you find solid support
•  You will have benefited from 0me premiums
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 Quick Summary
•  Calendar Spreads
•  Buy your LEAP a couple of strikes (or more) ITM
•  Sell close dated op0ons (same type CALL / PUT)
•  Done simultaneously
•  Will depend upon expected market movement next BUT
•  Usually just OTM / ATM
•  Take advantage of Time Premium decay
•  Roll out and up your op0ons depending on market condi0ons

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 Quick Summary
•  Know your Major Support and Resistance areas
•  You must s0ll have a mental stop area where you exit all
•  Not likely hold your LEAPS beyond 6 months 0ll expira0on
•  You do not want Time Premium decay of your LEAPS
•  Roll out your LEAPS if needed
•  Look for your minor resistance when selling your CALLs

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