Valuable advice on Calendar Spread adjustments

[Michael Gonsalves]

Raghunath Reddy, the founder of Opstra, has given practical and valuable advice on how to adjust a Calendar Spread when either of the break-even points are breached.

If one is handling a Call Calendar, if the upper break-even point is reached, the only way to adjust is by buying a new (ATM or slightly OTM) Calendar spread. This will extend the break-even point.

If the lower break-even point is reached, one can book profits in the short call and sell a new ATM or slightly call.

Alternatively, one can buy a Put Calendar to extend the lower BEP.

Yet another option is to cover the current period Call and to sell the next week's Call.

These are practical viewpoints which I have implemented and found useful.

   

[Michael Gonsalves]

In the video with Vivek Bajaj of Elearnmarkets, Raghunath Reddy has explained yet another method of adjustment, which is that when the BEP is reached, we simply exit from the Calendar spread (by booking a loss) and creating a new spread at that point. He has pointed out that this method yields very hefty gains.