Important notice
The information on this web site is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Trading in stocks and options involves risk. You can lose money. You should always seek professional advice from your stock broker. We are not stockbrokers and do not make recommendations to buy or sell any stock or option. We provide educational information for your evaluation.

Return to Option Strategies

Calendar Put Spread is a bearish strategy that consists of buying a in the money put and writing an out of the money put.

• This is the reverse of the Calendar Call Spread.
• This strategy is a debit credit and for bearish stocks in a down trend line.
• A debit spread strategy is one where we lay out more money then we receive.
• We can use these strategies short or long term.

One Option Contract is equal to 100 shares of any stock. On April 1, 2006, XYZ Stock is trading at 77.00

• Buy October 85.00 strike price put option at 8.50 you invest 850.00
• Write October 60.00 strike price put option at 1.50 you receive 150.00
• 850.00 – 150.00 = 700.00 a debit of 700.00

October Options expiration day XYZ stock trades below 60.00

• We wrote (sold) the October 60.00 strike price put we have the obligation to purchase the XYZ stock at 60.00
• We also buy the April 85.00 put this allows us to put (sell) the XYZ stock at 85.00
• We would by XYZ stock at 60.00 and sell it at 85.00 a 25.00 profit
• We would subtract the debit credit of 7.00 and have 18.00 profits 85.00 – 60.00 = 25.00 – 7.00 = 18.00 x 100 shares = 1800.00 profit

Another situation is for XYZ stock to be trading near 63.00 the last day of option expiration in October.

1 We would sell the April 85.00 strike price put option at about 12.00 x 100 = 1200.00

2 The October 60.00 strike price put we wrote would expire worthless, we keep the 1.50 x 100 = 150.00

We invested 850.00 and when we closed the trade we received 1200.00 a 350.00 profit

For writing the October 60.00 put we received 150.00, 350.00 + 150.00 = 450.00

The worst situation is for XYZ stock to be trading above 85.00 the last day of option expiration, we would lose the Debit Credit of 700.00.

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 gain value and it's trading at 80.00 we could close out

( Sell) the April 85.00 put option for a possible 6.00 remember we paid 8.50 loss 2.50 and keep the October 60.00 put option that we wrote and allow it to expire wordless and this would minimize our loss because we get to keep the 1.50, 2.50 – 1.50 = 1.00 loss

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 put and the more time premium we gain in the short put.

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 and margin cost, .