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How to Trade Options » OPTION SPREAD TRADING » The Bear Call Calendar Spread Option Strategy Explained

The Bear Call Calendar Spread Option Strategy Explained

Using the Bear Call Calendar Spread to Your Advantage

The bear call calendar spread is a combination of the option credit spread and calendar spread strategies. It is simply a credit spread but with an expiration date variation. You will have one leg of the position expiring in the front (nearest) month, usually between 30-45 days, and the other leg in a later (back) month.

The front-month position will be short (sold) and the later month, long (bought). Both legs will contain an equal number of options positions.

The strike (exercise) price of the front-month call options will also be lower than the back month call options

Bear Call Calendar Spread Example

Let’s say the overall market has turned bearish and we are interested in trading options with a bearish strategy on the SPY – the Exchange Traded Fund (ETF) which mimics the S&P 500 index. We decide upon a bear call calendar spread as follows:

Sell October SPY $117 call options
Buy November SPY $120 call options

Credit Received = 47 cents per position
We take out 10 positions for a total $470 credit.

We then analyze the above position which produces the following risk graph.

bear call calendar spread

Observations:

Our upper breakeven point is $22.38 which means the SPY can rise to that level before we start losing money. Above that, our loss sets in and falls away to a maximum loss of around $2,500 once the SPY cracks above $160.

On the downside, our maximum profit of $2,500 is achieved if the SPY closes at $117 on the October expiration date. If the SPY falls lower than 117 before then, our profit gradually tapers off but will always be no less than our original $470 credit received when we initiated the transaction.

So this is definitely a bearish option spread trading strategy, but with an upside that is protected by our longer-dated call options.

Comparing the Bear Call Calendar Spread With a Bear Call Credit Spread

 

bear call calendar spread

 

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DISCLAIMER: All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions. This is neither a solicitation nor an offer to Buy/Sell futures or options. Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVERCOMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.