Bull Call Calendar - SPY

I put in a call calendar today.

While there are people who has been very successful with calendars, I am not one of them.

But calendar does yield greater profit potential in a shorter time frame. Also, calendar with timing adjustments is less risk and when the market is stagnant, calendar can be profitable too.

I decided to enter a call calendar. I am leaning slightly bullish short term for 2 reasons:

1. The market decline has gone parabolic and the index is showing some signs of bottoming process on the price action. There is a double bottom formed and some consolidation.

2. The index has reached a correction of 78.6% since its decline. Most correction ends at least temporarily at 78.6 %. The probability is high here supported by some price patterns.







Trade

I entered the trade in the first hour of the morning when the index confirmed my expectation. If the index was not up this morning, I would have refrained from putting in the trade

BTO Oct 116 call at 5.65
STO  Aug 26  ( weekly ) 118 call at 0.95

NPD = 0.17 when I entered the trade. It was not 0.2 which would be ideal. But considering this is a weekly, I will benefit from the accelerated theta decay.

% of SC credit / Long call = 16.8%. This is a pretty good credit considering that I need only wait for 4 days!

PE : Get out at target of 20%.
If market is bullish, I may just let the trade run and add another SC

SE: Roll the SC to down and out or even reversed the trade if the index drops below 113 which is deemed to be a very important support. I will go bearish.

If the market goes very bullish above 120, I will roll the SC up and out for a credit.

Looking at the analytic profile, if it trade between 115 and 122, I will be making money for this trade.




Update: Aug 26th 2011

Today is the expiration of the weekly short call.

In the morning, the trade had reached my target of 20% ROI.

But I decided to wait till 3 pm to close the trade. It was interesting watching the volatility crash and the theta accelerating during the last few hours.  It was trying to pin at 118.

Finally, I closed the trade  at with an additional 9% profit from the target because of the accelerated theta decay and volatility crash.

STC Oct 116 c at 6.17
BTC Aug 26th C at .13

Total profit = $1306 or 29% ROI in  4 days.