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How to Trade Options » OPTION SPREAD TRADING » Comparing the Bear Call Calendar Spread with the Traditional Bear Call Spread

Comparing the Bear Call Calendar Spread with the Traditional Bear Call Spread

We have previously discussed the Bear Call Calendar Spread. So the logical question might be, “how does this compare with a ‘regular’ Bear Call Credit Spread?”

Below is a risk graph using exactly the same number of option contracts, only this time, all with October expiration dates.

bear call calendar spread

 

See how it compares with the payoff diagram of the Bear Call Calendar Spread – see below.

bear call calendar spread
If we had only used October SPY options for both legs. Our upside breakeven would’ve been reduced to $118.59 and above that, falling away to a maximum loss of $1,400.

On the downside, however, our maximum profit would be $1,600 if the SPY closes below $117 at expiration date. This $1,600 would be the initial credit premium we received which we note is greater than for the bear call calendar spread at $1.60 per contract.

Since our choice of option trading strategies is really just a matter of risk vs reward over a range of strike prices up to a given expiration date, you would be more inclined to enter a bear call calendar spread if you believe the price action of the underlying will remain pretty much unchanged up to the last week before expiration.

You will receive the maximum profit potential this way. This strategy is therefore most suitable for a stock whose price action has low volatility over time. Consulting weekly and monthly charts will help you here.

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.