Smart Option Strategies: Calendar Spread Screener Results for January 24th

Calendar spreads are an option trade that involves selling a short-term option and buying a longer-term option with the same strike.

Traders can use calls or puts and they can be set up to be neutral, bullish or bearish with neutral being the most common.

When doing bullish calendar spreads, we typically use calls to minimize the assignment risk. Likewise, if the calendar is set up with a bearish bias, we use puts.

Neutral calendars can use calls or puts, but calls are more common.

Let’s take a look at Barchart’s Long Call Calendar Screener for January 24th. 

I have added a filter for Market Cap above 40b and total call volume above 2,000 to remove small capitalization stocks.

The screener shows some interesting calendar spread trades on popular stocks such as BA, AVGO, COST, UNH, NKE, GS and TXN. Let’s walk through a couple of examples.

Boeing Calendar Spread Example

Let’s use the first line item as an example.

With Boeing stock trading at $211.5, setting up a calendar spread at $215 gives the trade a roughly neutral outlook.

Selling the February 2nd call option with a strike price of $215 and buying the March 15, $215-strike call will cost around $425. That is also the most the trade can lose.

The estimated maximum profit is $570, but that could vary depending on changes in implied volatility. 

The idea with the trade is that if BA stock remains trades around $215 for the next few days, the sold option will decay faster than the bought option allowing the trade to be closed for a profit.

The breakeven prices for the trade are estimated at around $427.50 and $456, but these can also change slightly depending on changes in implied volatility.

In terms of trade management if NVDA broke through either $202 or $233, I would look to adjust or close the trade.

Let’s look at another example.

COST Calendar Spread Example

With Costco stock trading at $687.59, traders could sell the $700-strike January 26th call and buy the $700-strike February 16th call.

That results in a net cost for the trade of $576 per spread, and that is the most the trade can lose.

The estimated maximum profit is $650, but that could vary depending on changes in implied volatility. 

The breakeven prices for the trade are estimated at around $686 and $718 but these can also change slightly depending on changes in implied volatility.

UNH Calendar Spread Example

The last example we will look at is on UnitedHealth Group stock.

With UNH stock trading at $515.52, traders could sell the $530-strike January 26th call and buy the $530-strike March 15th call.

That results in a net cost for the trade of $769 per spread, and that is the most the trade can lose.

The estimated maximum profit is $655, but that could vary depending on changes in implied volatility. 

The breakeven prices for the trade are estimated at around $516 and $549 but these can also change slightly depending on changes in implied volatility.

Mitigating Risk

Thankfully, calendar spreads are risk defined trades, so they have some build in risk management. Position sizing is crucial to ensure that minimal damage is done if the trade suffers a full loss.

One way to set a stop loss for a calendar spread is close the trade if the loss is 20-30% of the premium paid. 

Calendar spreads can also contain early assignment risk, so be mindful of that if the stock breaks through the short strike and it’s getting close to expiry.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

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