The market is overbought, and IV is low. Both facts make a put calendar spread an interesting hedge trade for those with a bullish portfolio looking to reduce risk. In today’s video, I’ll build a scaling put calendar on SPY.
Notes
Calendar Spreads
Structure: Buy longer-term option & sell short-term option against it.
Call calendar spread: Use this if you’re selling options ABOVE the market: Bullish leaning
Put calendar spread: Use this if you’re selling options BELOW the market: Bearish leaning
Greeks:
Positive Theta
Positive Vega (enter with low IV)
Positive/Negative Delta
Why I don’t like call calendar spreads (PBCC) right now.
Answer: Ideal environment is a mildly bullish one.
If I expect a big up move and want to go directional, Bull call vertical is better.
Why I like put calendar spreads when the market is OVERBOUGHT & LOW IV
- Options are cheap
- With scaling in and I can deal with the market rising further than I thought.
- POP is better than with a bear put vertical
- I can still profit if the market rises a little because of the positive time decay.
Favorite situation is I have a BULLISH portfolio and want to reduce risk slightly.
Scaling OTM Horizontal put calendar
Tickers: Higher-priced more stable tickers: SPY or QQQ
Structure: Buy 2-month OTM put and sell 1 month OTM put at the same strike price. I want the short put strike to have a delta around 30 to 40. It’s OTM but still reachable.
Profit Target: 15% to 20%
Buy spread for $3, sell for $3.45 to $3.60
Stop Loss:
Don’t lose more than 3x to 4x winners on a loser if market keeps running.
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