Trade Details & Summary

SPY Put Calendar (LIVE Opening Trade)

With the SPY on a huge run higher and prevailing low volatility we are taking this opportunity to get a little bearish with a put calendar spread for APR/MAY.


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  • Gary

    Being bearish on SPY for this trade, would you have considered a CALL Diagonal as well? For instance, sell the next weeks 206, buy the 2 week out 208, try to get maybe .15 or .20 cents? Do you ever do weekly diagonals on SPY like this?

    • You could have done a bearish diagonal as well here but I always like to just personally play the calendar or debit spread.

  • Philip

    I was just wondering that how large account should you have to start trading with calenders? I’m super interested in this strategy and would like to start using it in my daily trading operation.

    • I think that $3-5k is completely reasonable as long as you are keeping your position sizes small.

  • Thor

    I ammmm going to figure this stuff out!!!

Show Video Transcript +

In this video, we’re going to go through my thought process on adding a live put calendar spread to SPY. At the time that we’re doing this video, the markets have had a huge, massive rally up. You can see SPY which is the primary market ETF has moved basically from a low around 181 or so, up to around 203.

And in that timeframe, implied volatility has dropped dramatically. It’s now in the 9th IV rank on our platform and percentile. In this case, what we want to do is we want to take advantage of two things. One: The possibility that the market might move down slightly.

Not that it might crash from here, but just a slight move down, a slight retrace of the big move that it’s already made. And two: That if that happens, we might see implied volatility rise just a little bit. We want to take advantage of that in two ways, by that down, and possibly by the move up in implied volatility.

And the best way to do that is with a calendar spread because calendar spreads are excellent. They work well in directional plays where you’re slightly directional and in a market where implied volatility is low and could go higher. Calendar spreads do not function well when implied volatility is high and could go lower.

They lose a lot of money regardless of where the stock moves. In this case with SPY, what we’re going to do and how my thought process on calendars work is I like to do the calendars just a couple of strikes out of the money in the direction that I want to trade it.

In this case with SPY, if we’re going to be trading the calendar spread to the downside, meaning bearish, that I want to do the strikes a couple of strikes out of the money, maybe around the 200 strike or so. And we’ll analyze that here in a second as we’re doing it. But I don’t have any position in SPY right now. This is a brand-new position that we’re opening today. Again, this is live real-time trading, real money account.

If I go into the SPY trade tab, you’ll notice that there are a couple of contract months that we can choose from right now. In our case, we’re going to do the April, May calendar spread. What I like to do is make sure that there's enough time in the front month contract (this is the April contracts) that we get some real decay in the value of those options and apparently gives the stock enough time to move into the range that we need it to go.

With the case of this particular calendar, I want to do the April, May contracts. If I did the May, June, if I made the May the front month, 64 days might be too long. I like to do something under 30 days, maybe not under 15 days as like a basis and guideline. What we’re going to do is we’re going to open up the April contracts, and we’re going to scroll down to the put side.

And again, like I said, I want to do something a couple of strikes out of the money, and maybe we’ll start analyzing here at 200. It’s just a good round number, lots of liquidity, lots of open interest. It was going to be the case in SPY anyway. But I’m just going to right-click on the put side because that’s the side I want to build a calendar, go down to buy, and then over to calendar.

And as soon as I do that, now the calendar is going to come. What you’ll notice immediately is that that calendar defaults to the next weekly contracts that are available as the back month. And we want to change that. We don't want to do the April 4 which is the weeklies. We want to make the May contracts here which are the May 16’s.

Once you do that, you can see now the price of the calendar changes to $195. That’s going to be a little bit higher-priced. As always, as you build your calendars, the further out of the money you go, the further we go away from the stock price, the cheaper that calendar is going to be.

But again, the further you go out of the money, the less likelihood of success that you have. In our case, what I like to do with these calendars is I like to analyze the trade. I can just go ahead and just click explain on this business right now and bring it up on our payoff diagram. And this is the payoff diagram for a calendar.

Again, it looks very familiar to probably some of the tradings that we’ve done at Option Alpha. But again, what we want to see as the ideal situation is that the stock closes front-month expiration, meaning at April expiration. At the time that we’re doing this video, the stock closes at the short strikes of our calendar which is the 200.

With SPY right now trading about 203.61, what this payoff diagram does is it gives us a little bit of upside room for the stock actually to rally higher and for us to make some money. If the stock rallies up to about 205 ½, we can still make money on this calendar at front month expiration. But again, what we want to do is we want to play a little bit more of the downside move in the stock and hopefully get a move down to around 200.

Now, you’ll also notice that at least right now, the downside breakeven or our lower breakeven is around 194. We’ve got a pretty good range here between about 205 and 194 for SPY to move over the next month and make some money. If I go back to the charts here, 194, 195 is right about here, and about 205 is right about here.

Again, we’re playing this directionally bearish. That gives us a big net to catch the market in and to make some money. And what I like about calendars is that if you traded these and implied volatility rises and the stock doesn't fall in the direction that you want, you can make money on that just purely by the increase in implied volatility.

If we go back to the analyze tab, we can also adjust this a little bit, and we can do… Let’s say if we wanted to go a little bit further out so that you can see what it would look like. If we want to do the 195's, you’ll notice that that price is going to be a lot cheaper.

Hopefully, you can see this on the video. It’s about 169, 168. But if you do the 195 strikes, now you're taking even more of a directional bet in the market, meaning that you’re hoping that the markets fall in a big way before you make money.

Again, I like to play things a little bit out of the money, give myself a little bit of cushion on the top side when I’m doing these put calendar spreads. In my case, I like the 200 strike put calendar spread in May and April. All I can do from here is just right-click on it, hit confirm and send.

That will pop up the order dialog box since we’re net buying options, we just have the purchasing power reduction of 197 with commissions, and then I hit send. Hopefully, this gets filled here pretty quick, and we’ll just take a look. Okay, perfect. You can see here that this spread already got filled in, immediately filled live real-time.

We’re in on a put calendar spread in SPY, so from here, we’ll monitor this trade and try to take it out once it's gained value by about 25% to 50% depending on what other positions we have. But it should be a good trade. I like this trade. It gives us a lot of downside exposure, a lot of upside volatility exposure in SPY.

And we’ll see where it goes. As always, I hope you guys enjoyed these videos. If you have any comments or questions, please ask me right below. And until next time, happy trading!

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