Put calendar

Summary

A put calendar sells a put that ends soon and buys the same $100 put that ends later; despite the puts, it wants XYZ to sit still near $100, not fall. In the XYZ example it costs $140, $4 less than the call calendar, and makes about $201 if XYZ sits at $100 on day 30. Far above $100 you lose the $140, far below a little more, with a floor of $144 on a crash to zero, and you break even between about $95.03 and $105.60 on day 30; the tent is a model estimate that changes with volatility.

Key terms

put calendar

Selling a put that ends soon and buying the same-strike put that ends later; it wants the stock to sit still, not fall.

calendar spread

Selling a near-dated option and buying a later one at the same strike, a bet on time.

near expiry

far expiry

debit spread

A spread you pay to open.

time value

The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.

tent

The curved, peaked shape of a calendar or short straddle on its key date.

volatility

The size of the swings a stock is expected to make, written as a yearly percentage, saying how far but not which way.

model estimate

A value worked out by the pricing model, such as a calendar's day-30 result, that changes when volatility changes.

assignment

When a buyer exercises and you, as the seller of that option, must deliver.