Logic and Application
- To leverage options theta time decay in sideways market when price moves within a specific range within current expiry.
- Logic is to neutralize delta of same strike of current expiry and next expiry and collect premiums through theta time decay
- Recommended to apply for stock or index options with good volume and liquidity.
Steps for a call based calendar spread
- T1 = Sell 1 lot CE of current expiry near ATM strike having delta around 0.45
- T2 = Buy 1 lot CE of next expiry near ATM strike having delta around 0.45
- Net premium pay 0 , Net premium get = (T2-T1)
- Multiply the lots based on personal target risk management levels
Profit levels
- Profitable when Market remains sideways within the breakeven range during the current expiry
- Exit if personal target levels reached
- Exit at breakeven if 70% of threshold reached
- Exit at full profit on current expiry date
- Review and trail stop loss every day once as per personal profit gain levels
Loss levels
- Loss when price nears breakeven points
- Exit at breakeven points
- Exit at personal Stop loss levels breach
Interim Adjustments
- When price reaches around 70% of breakeven levels exit and re-execute the steps , this will lead to carry forward to next cycle with minimal profits or loss.
Disclaimer: The information provided in this article is for educational purposes only and should not be construed as financial advice. The content is based on publicly available information and personal opinions. Readers are encouraged to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The author and publisher are not responsible for any financial losses or damages incurred as a result of following the information provided in this article.