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Back to the grind, folks...so far in this series we’ve defined calendar spreads and talked through a few tips for finding a good underlying. Today’s post wraps up the tips, plus explores adding a little directional spin to calendars.

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Last week we kicked off a new series on calendar spreads, starting with a working definition and inching towards today’s topic: how to pick underlying stocks or indices that work well with a calendar strategy.

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Now that we’ve worked our way through long call spreads (that series starts here), it should make a great basis for exploring another strategy, the long calendar spread. (This strategy goes by many names, from “time” spread to “horizontal” spread.) They’re a little tricky to teach, because unlike the usual P&L graph upon expiration, a calendar spread includes more than one expiration point – hence the “calendar” part of the play. Still, if you can bust out and think beyond that typical P&L-graph mindset, you’ll find that calendar spreads can be really useful for moderately active but predictable stocks during periods of relative quiet.

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We’re headed into the home stretch of my blog series on early exercise. To date, we’d defined early exercise and established that it does, in fact, happen often enough to plan for. We’ve reviewed some factors that might up the chances of early exercise and assignment on your shorts; we’ve also calculated cost-to-carry and chatted about synthetic relationships that often drive the option owners’ decision to exercise (or not). Last week we focused on assignment risk to spreads, especially calendar spreads. And this week we wrap up with a discussion of what’s known as “pin risk”.

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Welcome back to my blog series on early exercise! Sorry for the delay in getting back to this series – lots of travel and other obligations intervened. But I’ve been getting great feedback from you about this series, so I’m glad to have the chance to get back on track.... (more)

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