Return to Option Strategies

A Calendar Call Spread consists of one long Call (buying a Call Option) and one short Call (writing a Call Option).

• This strategy is a debit credit and for bullish stocks in an up trend line.
• We can use these strategies short or long term.
•  One Option Contract is equal to 100 shares of any stock.

March 11, 2006, XYZ Stock is trading at 77.00

1. Buy October 70.00 strike price call option at 8.50 x 100 = you invest 850.00

2. Write October 90.00 strike price call option at 5.00 x 100 = you receive 500.00.
3. 850.00 – 500.00 = 350.00 a debit of 350.00

October Options expiration day XYZ stock trades above 90.00

We wrote (sold) the October 90.00 strike price call we have the obligation to provide to that call buyer the XYZ stock at 90.00, we did also buy the 70.00 April call this allows us to call out (buy) the XYZ stock at 70.00 we would receive 20.00 profit here.

We would subtract the debit credit of 3.50 and have 16.50 profits, 90.00 – 70.00 = 20.00 – 3.50 = 16.50 x 100 = 1650.00

Another situation is for XYZ stock to be trading near 88.00 the last day of option expiration in October.

1 We would sell the April 70.00 strike price option at about 18.00 x 100 = 1800.00.

2 The October 90.00 strike price we wrote would expire worthless.

We invested 850.00 and when we closed the trade we received 1800.00 a 950.00 profit

For writing the October call we received 500.00 a total profit of 1450.00 

The worst situation is for XYZ stock to be trading below 70.00 the last day of option expiration, we would lose the

Debit Credit of 350.00.

These are American style options and the best thing with this is that we can close out our positions at any time

before expiration date, and minimize our losses.

Example; XYZ stock begins to lose value and is trading at 74.00 we could close out (Sell) the April 70.00 call option for  5.00 to 6.00 (depending on how much premium time was lost) remember we paid 850.00. And keep the October 90.00 call option that we wrote and allow it to expire wordless and this would minimize our

loss because we get to keep the 5.00

Things that we must consider.

• Time the longer it takes for the XYZ stock to move the more time premium we lose on the long Call and the more time premium we gain in the short cal
• This is a teaching aid to option trading and it is designed to help you think of the different possibilities, by no means all situations are included. No consideration was giving to the cost of brokers fees or margin cost, etc.