Calendar spreads

holzie said: "Well I dont think that we had any live trades on lately so we need change that. I am deployed so I cant watch the market really daily, so I only have calendar spreads on right now. I like calendars because of their relatively low cost and low risk/decent reward ratio...basically it takes a dumbass to screw up a calendar with 3 month long option :) :signs053: I am getting ready to completely roll my KO calendar because my long Aug option will obviously not allow me to sell anything against it once July expires. So I will post the trade once I do it in here, which will be 7-9 days, so we can have a trade from start. What I can do in the meantime is a calendar position that I put on like 10 days ago and I can show some things on it. I will warn you that all those guys that have been around here for a while, this shit is gonna be boring for you but I am sure there are some that can appreciate a free tuition from somebody that paid it already to Mr.Market :) Alright, the stock is GE. Position: +1 GE SEP 07 37.5 CALL purchased at 1.81 -1 GE JUL 07 37.5 CALL sold at 1.06 ----------------------------------------------- Total cost was debit 0.75 ($75) I dont know exactly what the price of GE was at the time but I think between $38.10 and $38.20. So let's assume the worse choice and take $38.20.. So what we got: 38.20 - 37.50 = 0.70, thats my intrinsic value, which I really not care about right now...but 1.06 - 0.70 = 0.36 which is my time value and thats the one I do care about -- bare in mind that the 0.36 is not for a full month but rather for maybe 2 weeks. So what do I do? I just sit there and watch this pretty much like Johny Bench and wait for time to eat up the 0.36....so that maybe 2 days before expiration I roll it into August with more time value....this is just a little snapshot. It's incomplete and inacurate because I dont havew the exact dates and stuff, which is why we are gonna wait until I do the KO trade next week. After that, I am just gonna follow it here. Holz."

Crushed_Vol said: "Is there a reason that you put this Calender on with ITM options?"

MSCantrell said: "[QUOTE=holzie]Well I dont think that we had any live trades on lately so we need change that. ... I will warn you that all those guys that have been around here for a while, this shit is gonna be boring for you but I am sure there are some that can appreciate a free tuition from somebody that paid it already to Mr.Market :) ... Holz.[/QUOTE] Thanks muchisimo, Holzie!"

holzie said: "[QUOTE=Crushed_Vol]Is there a reason that you put this Calender on with ITM options?[/QUOTE] Yes, there is. I actually prefer ATM but will do the closest ITM where available. The reason is much larger time premium then OTM. Remember that the goal is not having the option expire worthless, which is nice btw when that happens. The goal here is to buy it back/roll it for less then you sold it for. Holz."

cdowis said: "I find difficulty doing calendars with low priced stocks. To get enough profit to beat the commissions, I find that a stock must be at least $60. Otherwise the hurdle for profit above the sunk cost is too high. Makes no sense to do trades which only benefit the broker. The exception is a large skewed positions, which I generally avoid."

Lukester said: "[QUOTE=holzie]Well I dont think that we had any live trades on lately so we need change that. I am deployed so I cant watch the market really daily, so I only have calendar spreads on right now. I like calendars because of their relatively low cost and low risk/decent reward ratio...basically it takes a dumbass to screw up a calendar with 3 month long option :) :signs053: I am getting ready to completely roll my KO calendar because my long Aug option will obviously not allow me to sell anything against it once July expires. So I will post the trade once I do it in here, which will be 7-9 days, so we can have a trade from start. What I can do in the meantime is a calendar position that I put on like 10 days ago and I can show some things on it. I will warn you that all those guys that have been around here for a while, this shit is gonna be boring for you but I am sure there are some that can appreciate a free tuition from somebody that paid it already to Mr.Market :) Alright, the stock is GE. Position: +1 GE SEP 07 37.5 CALL purchased at 1.81 -1 GE JUL 07 37.5 CALL sold at 1.06 ----------------------------------------------- Total cost was debit 0.75 ($75) I dont know exactly what the price of GE was at the time but I think between $38.10 and $38.20. So let's assume the worse choice and take $38.20.. So what we got: 38.20 - 37.50 = 0.70, thats my intrinsic value, which I really not care about right now...but 1.06 - 0.70 = 0.36 which is my time value and thats the one I do care about -- bare in mind that the 0.36 is not for a full month but rather for maybe 2 weeks. So what do I do? I just sit there and watch this pretty much like Johny Bench and wait for time to eat up the 0.36....so that maybe 2 days before expiration I roll it into August with more time value....this is just a little snapshot. It's incomplete and inacurate because I dont havew the exact dates and stuff, which is why we are gonna wait until I do the KO trade next week. After that, I am just gonna follow it here. Holz.[/QUOTE] If your short call is in the money, then wouldn't run the risk of assignment? Sorry for a newbie question. For spreads, I always have this fear of having my short leg in the money!"

holzie said: "Hey Lukester, sorry for not having time to post here what I intended to post -- time hasn't allowed. To answer your question though. Yes, if you held it all the way till expiration day, you will be assigned. However, I am interested in the time value thats in that ITM option, specifically the time value decay factor. I generally buy back or roll it few days before the expiration. So that's the trick. It gets pretty good returns risk/reward wise."