StockInvesting.cc

Calendar spreads are powerful tools when used correctly in your portfolio’s. What I really like about this strategy is that you are control a large amount of stock with a much smaller amount of working capital compared to straight out stock purchases, as well as the recurring income these trades can bring into your accounts. Let’s take a closer look at the strategy and discuss the advantages and disadvantages of using this stock investing strategy.

The calendar spread is a bullish strategy. This strategy can be thought of as a covered call when instead of purchasing the stock you buy the LEAP instead. Setting up these trades is a two trade transaction. You first will BUY a deep in the money call option and then you will sell another call option at or around the current stock price. This transaction will always result in an initial debit transaction. Profit is made as the stock trades above your break even point. Many times these trades can be set up so that the stock at the time of purchase is already trading at or above the sold calls.

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