Sell two one-month calls against one three-month call, and you pay almost nothing. This lesson shows why that small debit doesn't limit the loss, and what the leftover call really cost.
After this lesson you can
- Break a ratio calendar into a calendar spread plus a naked call
- Find where it peaks and where the cliff starts on the day the short calls expire
- Explain why an early rise hurts more than the same rise at the end
- Decide what to do with the call you still hold after the short calls expire
- Avoid the five mistakes, above all treating the $36 debit as the most you can lose
Chapters
- 0:00Two short calls, one long
- 1:32A calendar plus a naked call
- 2:50Where it stands after a month
- 4:14A cliff that comes sooner
- 5:25Leaning against a rise
- 6:34When Acme rises early
- 7:38The second half: volatility
- 8:44Lesson five's margin, again
- 9:46After the short calls expire
- 10:55Five mistakes
- 11:51The whole lesson on one screen