Lesson Overview

Calendar Adjustments

Calendar spreads are low probability trades to begin with but that doesn't mean that we can't make adjustments that increase their likelihood of success should the stock move fast and one direction.

As with most of the strategies that we will adjust the mechanics will remain roughly the same, i.e. rolling one side of the trade to follow the market and collecting additional premium to reduce risk.

With calendar spreads in particular we will always look to adjust the front-month contract that we are short, moving it up or down based on the stock's movement. We rarely will touch the back-month contract we are long.

More Discussion

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  • Glenn

    So, I guess this only works for a credit on a Put calendar that goes up or a Call calendar that goes down. We can make similar adjustments for a debit if they go in the opposite direction. Is there a compelling reason not to do that? I know it would increase the risk (and use more buying power), but the risk is on the side away from the way the underlying is currently moving. And I guess it would cut your max profit a bit, as well. But, we’re not waiting for full profit anyway.
    What do you think? It there a viable strategy there or am I missing something?

    • Generally yes. These are low probability trades to begin with so there is little beyond this that I would do to adjust them and adding to the position is not a viable strategy in my opinion. We also have another tutorial on debit spreads in this section you can check out.

  • Jose

    Kirk, can the calendars spread apply to weekly options??

  • Steve

    I can’t seem to make this work. I always end up with a vertical spread as a whole new position and the calendar spread is still there as before. ???

    • If you have options in two different contract months it should be a vertical.

  • You could roll to a later date – not preferred but possible.

  • Modifying the existing position.

  • Wayne

    In this example the underlying moves to 210, but your adjustment only resets to 205. Is this representative of how much of an adjustment should be made? In other words, should the new strike be somewhere between where it originally was and where the underlying is currently? Why not all the way to 210 for a bigger credit?

    • Good question – it varies on time until expiration. The closer you are to expiration the more aggressive you want to adjust and visa versa. In this case we still wanted to leave a little room in case the stock came back down.

  • Wayne

    Yes, that what I suspected. Logically, time to expiration should determine the aggressiveness of the adjustment in most (if not all) strategy adjustments.
    Thanks.

  • Yep in that case it’s hard to adjust when it goes beyond your strikes. My view is that in that case you’ll have an opportunity to close it for a profit usually as the stock moves through your “profit window” so be sure to have a working, automatic closing order ready.

    • Nishchal Sharma

      Thanks for the reply kirk. Is it right to sell ATM put (near) for calender? or just move one strike lower to have a breathing space. I guess we can get a kick from volatility in a put calender since stock moving down increases volatility and calender benefits from it.

      • Yeah I would skew it a little in the direction you think the stock would go (in this case we would skew a couple strikes lower).

      • Nishchal Sharma

        Thanks for the quick reply kirk. Your videos has immensely improved my option trading. I trade with more confidance. God bless.

      • Great to hear – please share them online for us!

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