Explore Your Options by Tom Gentile
CALENDAR SPREAD QUESTIONS
I have developed some indicators that
give a fairly accurate picture of when
a trend is over. In other words, when
signal comes, Iím about 70% sure that
the trend will either reverse or go flat.
A calendar spread seems like a good
tool for trading this kind of opportunity.
I know what to do if the market goes
against me and the trend resumes and
know what to do if the market goes more
or less flat. My question is about what to
do if the market reverses enthusiastically
and overruns the spread.
Letís say stock QRS has been declining
through the month of April, then
turns back up and I get a signal on the
25th of the month when the price is at
$27. I decide to put on a calendar
spread, selling the May $30 call and
buying the June $30 call. But instead of
going flat, the market takes off, heading
for $30 and maybe then some.