Options Academy
Calendar Spreads 103: The Bullish Calendar
Want to buy a long-term call but it's too expensive? Use a Bullish Calendar Spread to finance your position. A strategy for the aggressive speculator.
Setup: OTM Strikes
A Bullish Calendar Spread is established with Out-of-the-Money (OTM) calls.
Scenario: Stock XYZ is $45. You think it will go to $55 eventually, but maybe not this month.
Trade: Sell April 50 Call ($1.00) / Buy July 50 Call ($1.50).
Net Cost: Only $0.50. (Compared to $1.50 for the naked long call).
The Two Conditions for Success
To hit a home run with this strategy, you need two things to happen in sequence:
1. Short Term: The stock stays below $50 until April. The short call expires worthless. You keep the $1.00 premium.
2. Long Term: The stock rallies to $50 (or higher) after April. Now you own the July 50 Call (which you got for cheap), and it starts printing money.
If the stock rallies too fast (e.g., to $60 in March), the short call will hurt you, capping your gains.
Capital Efficiency
This is a high-leverage play. In the example, you control the July 50 Call for just $0.50.
If the stock slowly grinds up to $50 by July, that option could be worth $3.00+. That is a 500% return.
However, if the stock stays at $45 forever, you lose your $0.50. If it crashes, you lose your $0.50.
Key takeaways
- Bullish Calendars use OTM strikes.
- They significantly reduce the cost of holding a long-term position.
- Risk: The stock rallying "too fast" hurts the position (Short Gamma).
- Ideal for "Slow Grind" bull markets.
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