In the article, “Bond ETFs – Calendar Calls and the Business Cycle“, we outlined a bond ETF calendar calls stock options strategy. This strategy is mostly geared for a softening economy, but may perform well in an environment of relatively unchanging interest rates as well, as is the case of the current interest rate environment.
In the article, “Bond ETF Calendar Call Spreads – Sept. 06“, we continued the bond ETF calendar calls stock options strategy saga by continuing to write another short call option (TLTJK) paired with a previous long call option (TLTAC). The final results of this position ended with a 0% return on October 20, 2006 (options expiration day for October).
Using PowerOptions new options back testing tool SmartHistoryXL, we determined the TLTJK/TLTAC calendar calls stock options strategy position encountered a maximum return of 15.2% on 10/4/2006 and a minimum return of -7.6% on 9/18/2006. Additionally, this position exhibited a positive return for over 70% of the time period from position selection to stock options expiration.
With calendar calls, as in the case of Kenny Roger’s song “The Gambler”, sometimes you’ve got to know when to hold-em and sometimes you’ve got to know when to fold-em. In this case, it would have been prudent to exit the calendar calls spread stock options position after “holding-em” for 12 days.
Generally, the best strategy for this type of trading is for the stock options trading investor to select exit points when a position is entered and having the discipline to stick with the stock option trading exit plan. For example, a plausible exit strategy for this position might have been to exit the position after experiencing a return of greater than +10% or less than -10%.
Of course the stock option trading investor might miss out on an additional +5% of return after exiting, but a +10% return is better than ending up with nothing, as in the case of this position. And a 10% return in 5 to 10 days should satisfy most discerning investors.
We will consider the bond ETF calendar calls stock options strategy again, and will select positions on October 25, 2006 with options expiring on November 17, 2006 (November options expiration day). The selected position returned by PowerOptions‘ SmartSearchXL is shown below:
| Results for Calendar Call Spread Search on October 25 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Sym |
Stock Price |
Sell Option |
Expire &Strike |
Bid | Buy Option |
Expire &Strike |
Ask | %Dnsd Prot |
%If Asgnd. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TLT | 87.76 (+0.56) | TLTKK | 06 NOV 89.0 (24) | 0.15 | YLIAE | 08 JAN 83.0 (451) | 6.1 | 2.5 | 14.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trading calendar calls stock options strategy positions is sometimes as Forest Gump’s mother says, “like a box of chocolates, you never know what you’re gonna get”. With that in mind we will take our own medicine and decide to exit this position if the return is greater than +10% or less than -10%. But if this position does nothing in the next 24 days, it will only lose -1%.
Join PowerOptions today, and you too can start reaping the benefits of the bond ETF calendar calls spread investment strategy.
PowerOptions provides Internet based tools for analyzing stock options with specific search criteria and for finding potentially lucrative option income. For those seeking to execute a calendar call spread investment strategy for their personal portfolios, PowerOptions provides an Internet based search engine for finding potentially lucrative income producing calendar call spread options positions.
[tags] calendar calls, investment strategy, option income, options trading, poweroptions, stock option trading, stock options [/tags]