Investing is nothing more than taking money you want to buy something fun with and putting it away into a piggy bank that makes more money. Magic? Kinda. The concept is sound and the premise is valid but the magic is the key. The Magic is knowledge and that is what makes the bank come alive. This magic is not given to us by a squad of genies or fairies but it is the precept that hard work is better than easy or even no work.
Thomas Edison did not invent his magic bulb without hard work. The numerous failures would have stopped most of the people of his day and ours as well. Mr. Edison had no other options than to continue on. He had a dream, and we have a dream that must carry us through. Hard work will teach how to find the magic in options trading. Let’s get started!
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Investors who want to participate in this market can use options to limit their risk to an adverse move.
Today we investigate the simple Reverse Calendar Call Option Strategy of selling and buying calls of the same strike price, but different expiration months, to participate in profits when the underlying stock price moves sharply in either direction. These options spreads with the same strike price are called Horizontal Call Spreads.
This form of short calendar spread benefits from a sharp move in the underlying stock, while simultaneously putting reward/risk ratio in your favour. It also has the unique characteristic of having a much higher maximum potential profit than maximum potential loss.
The S&P/ASX 200 has had a fantastic few months since it bounced sharply off its November lows. Stocks have been moving sharply in the direction of their underlying trends, as seen with the banks’ unrelentingly move higher, while the resource stocks have been moving in the opposition direction (in-line with the falling commodity prices).
There are a number of reasons why a long term investor may not want to jump into an outright stock position in this market environment, including the risk of a pullback near-term.
Reverse Calendar Call Option Strategy
The Reverse Calendar Call Spread is a volatile options trading strategy that profits when the underlying stock breaks out to either the upside or downside. We will discuss the Short Horizontal Calendar Call Spread today where the strike price is constant and the expiry months are different.
As mentioned earlier, this form of short calendar spread has a much higher maximum potential profit than maximum potential loss, putting the reward/risk ratio in your favour. This compares favourably with most other volatile options strategies that have a larger maximum potential loss than maximum potential gain….More at Reverse Calendar Call Strategy: Part 13 of Options Trading for All …
The task ahead may seem improbable but if the course is sound then that ray of light will break through at the given time. Thanks for your visit and hope to see you again!