I have a trade for MCD Calendar.
I am trying out a ITM Call Calendar. This is a new idea. Probably there are some loopholes I am not aware as I am still learning calendar. The reward versus seems too high to be true. Please post comments if you find any loopholes
BTO Jan 55 C = 4.75
STO Nov 55 C = 4.45
Debit ( Risk ) = 0.3
PE: Target at 200% ROI
SE: - If stock becomes bearish ( < 52), exit with a small profit or breakeven
- If stock becomes bullish ( >60 ) roll the short call up.
Considerations:
· Expectation: MCD is expected to be short term bearish moving down from current price of 59. It has hit a temporary resistance. I expect the stock to end by Nov expiration to between 51 and 58. If it does, I will make money.
· It is actually a short term bearish calendar. It is like shorting the stock for 1 month but in this case the upside risk is limited to 0.3. Also, if the stock goes really bearish and gap down a lot <50, I will also lose 0.3
· You can also place a LC Jan 60 and a SC 57.5. As long as the stock stays below 60, you will not lose money even if the stock goes to zero. The flip side is that if the stock goes above 60, you will lose more money than the 55/55 call calendar proposed
· In my case, I believe the stock will not go down below 51 by Nov expiration and will not go above 59. My risk is limited to a small amount of 0.3 but my maximum reward if the stock finished at 55 is 1.25.
Posts
Comments from Joseph:
ReplyDeleteIt is not unconventional. Most of my calendar trades are "directional", instead of "neutral".
In my opinion, the trade is "semi vegas". That why the return is high if you're right.
You can use TOS the check the following:
1.Probability of touching: for Nov 55 call, it is 27.84%
2. Probability of expiring: for Nov 55 call, it is 85.99% (this meaning that Nov 55 call will expire OTM with 85.99%)
Strike 57.5 has higher probability, but there is no Jan 57.5 call option available.
1.Probability of touching: for Nov 57.5 call, it is 61.37%
2. Probability of expiring: for Nov 57.55 call, it is 68.28% "
Question on the spread sheet:
ReplyDeleteThe return for stagnant and slight bullish might not be correct.I think there should be loss if the stock is above 59 at expiration.
Joseph,
ReplyDeleteYou are right. I have revised the trade to reflect what you said.
It is still a very good trade!
My MCD trade has gone against me. I will be losing $300 for 3 contracts. It was a small gamble for a bigger reward. I may still make money as theta is still in my favor.
ReplyDeleteLooking at MCD chart, it is at multi-year high and is severely overbought.
I added a Jan 55 put. I believe it will correct to around 60 soon and I will sell my put.
I close my MCD trade for $600 loss for 10 contracts. Although, the maximum loss was calculated to be $600, I do not want to take the risk of the SC expiring and taking a short position of the shares.
ReplyDeleteI did bought a put for Jan 55. I also sold a put at Dec 60. If the stock goes down, I am ready to take ownership of the stock. But if it goes up, my Jan 55 put is protected.
Rolled the Dec 60 SP to Jan SP for a credit of .62.
ReplyDeleteSo far the trade is doing well. I have almost recaptured back the slight loss of $300 in this trade.
I believe by the time the trade is closed, it will be profitable or breakeven.
I am trying to keep the losing records on my trades to a minimum. So far, so good.