Calendar Spread Screener Results For May 31st

Calendar spreads are an option trade that involves selling a short-term option and buying a longer-term option with the same strike.

Traders can use calls or puts and they can be set up to be neutral, bullish or bearish with neutral being the most common.

When doing bullish calendar spreads, we typically use calls to minimize the assignment risk. Likewise, if the calendar is set up with a bearish bias, we use puts.

Neutral calendars can use calls or puts, but calls are more common.

Let’s take a look at Barchart’s Long Call Calendar Screener for May 31st. 

I have added a filter for Market Cap above 40b and total call volume above 2,000 to remove small capitalization stocks.

The screener shows some interesting calendar spread trades on popular stocks such as AVGO, NFLX, UNH, TSLA, SNOW, ACN, COST, LLY and ADBE. Let’s walk through a couple of examples.

NFLX Calendar Spread Example

Let’s use the second line item as an example.

With Netflix stock trading at 392.98, setting up a calendar spread at 405 gives the trade a slightly bullish outlook.

Selling the June 16 call option with a strike price of 405 and buying the August 18, 405-strike call will cost around $1,835. That is also the most the trade can lose.

The estimated maximum profit is $1,200, but that could vary depending on changes in implied volatility. 

The idea with the trade is that if NFLX stock remains around 405 for the next two weeks, the sold option will decay faster than the bought option allowing the trade to be closed for a profit.

The breakeven prices for the trade are estimated at around 380 and 440, but these can also change slightly depending on changes in implied volatility.

In terms of trade management if NFLX broke through either 380 or 440, I would look to adjust or close the trade.

Let’s look at another example.

SNOW Calendar Spread Example

With Snowflake stock trading at 158.65, traders could sell the 160-strike June 16th call and buy the 160-strike August 18th call.

That net cost for the trade would be around $900 per spread, and that is the most the trade can lose.

The estimated maximum profit is $560, but that could vary depending on changes in implied volatility. 

The breakeven prices for the trade are estimated at around 148 and 176, but these can also change slightly depending on changes in implied volatility.

TSLA Calendar Spread Example

The last example we will look at is on TSLA stock.

With Tesla stock trading at 201.16, traders could sell the 205-strike June 16th call and buy the 205-strike August 18th call.

That results in a net cost for the trade of $1,180 per spread, and that is the most the trade can lose.

The estimated maximum profit is $800, but that could vary depending on changes in implied volatility. 

The breakeven prices for the trade are estimated at around 189and 227 but these can also change slightly depending on changes in implied volatility.

Mitigating Risk

Thankfully, calendar spreads are risk defined trades, so they have some build in risk management. Position sizing is crucial to ensure that minimal damage is done if the trade suffers a full loss.

One way to set a stop loss for a calendar spread is close the trade if the loss is 20-30% of the premium paid. 

Calendar spreads can also contain early assignment risk, so be mindful of that if the stock breaks through the short strike and it’s getting close to expiry.

Please remember that options are risky, and investors can lose 100% of their investment. 

This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.

On the date of publication, Gavin McMaster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.