Nymex Calendar Spread Options - How to Profit From Range-Bound Stocks Using Horizontal Options Spreads
You find a stock that is drifting aimlessly in a sideways channel. Can you still profit from it? Sure! You can use a horizontal options spread. This spread is created by simultaneously buying and selling call or put options. The options will have the same strike price, but the short option expires first.
This strategy is also known as a time spread or a calendar spread. Because the underlying stock has no direction and low volatility, the short option's price (which is closer to its expiration date) will degrade faster then the long option's price.
For example, suppose that stock XYZ is trading at $56, and September ABC 55 calls are trading at $3.74 and November ABC 55 calls are trading at $5.44. Putting on the spread will cost (5.44 - 3.74) = $1.70. Nymex Calendar Spread Options
If, after 28 days, the stock is trading at $56.57, then the Sept. 55 calls may be going for $1.80 and the Nov. 55 calls may be worth $3.75. Now, closing out the trade (buying the Sept call and selling the Nov call) will return (3.75 - 1.80) = $1.95. This would result in a profit of $0.25 on the spread.
This means that, if you put on 10 horizontal spreads, it would cost you $1700 and you would make $250. That is a one month return of 14.7% on a stock that went nowhere!
By adding stock options to your stock trading arsenal, you get the flexibility to create positions that can profit from any market condition. Try this powerful Nymex Calendar Spread Options and change your life forever! You'll never regret it!
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