Long Synthetic Calendar [Strategy Overview]

• Strategy: Sell ATM 30 days call options contract + Buy ATM further month to expire put options contract + Buy Stock (ratio of 1 to 1 to 100)

• Number of legs: 3

• Market Prognosis = Range-bound or Sideways (stock going nowhere)

Here we have the 2 original trades - Long Protective Put:

PLUS extra short call leg

Then we have the so-called Synthetic Calendar Spread:

• Implied Volatility = In the low 20% of the last one year for the long leg. Short leg’s IV should NOT be greater than 15% of the long legs – IV skew.

This requires specialist software such as Optionetics Platinum.

• Expiration Month = 30days to expire

• Cost = Risk = Max Loss = Premium paid for the calendar spread = premium paid for long leg + premium received for short leg

• Max Profit = not fixed and best calculated by software such as Optionetics Platinum

• Upside and Downside Breakeven Point = not fixed and best formulated by software such as Optionetics Platinum

• Margin = None

• Advantage over Straight Call or Put and Stock = Make money when stock goes no where.

• Disadvantage over Short Put or Call Spread = Higher Cost

• Disadvantage over Stock = Limited time to be right.

• Disadvantage over Calendar = Higher Cost

Tags: Calendar, calls, Long, options, puts, Spread, Synthetic

Category: Calendar Spreads