Reverse Calendar

Discussion in 'Options' started by asdfghj7, Dec 19, 2009.

  1. I was going to ask if anyone knew the authority on reverse
    calendar spreads. Now that I've researched it, I'm lucky if someone here knows a trading book with even 'ONE' chapter devoted to this spread and it's adjustments. Not one trading book on amazon has a book with a chapter on this spread strategy. I sincerely appreciate any warning concerning this very unfavorable style of trading. I believe 99% of those comments are coming from a good place. Regardless of this fact, I would still like to study this strategy in more depth. If anyone can answer this, I'd be very grateful.
  2. rosy2


    whats a Reverse Calendar?

    do you mean selling the spread?
  3. spindr0


    There used to be a monkey around here who was an expert on reverse spreads. If he wanted the stock to rise, it went down :D

    Seriously, if interested in reverse spreads, use the search feature and you'll find some discussions. I doubt that there's an authority on them since it's a bit of an odd strategy.
  4. MTE


    I'm not sure what exactly you are looking for, but whatever applies to a calendar, the inverse applies to a reverse calendar.

    This is not a complicated strategy.
  5. I like it... especially during times of high IV due to market capitulation...

  6. I believe the reason reverse calendar spreads are rarely mentioned is the unfavorable margin treatment that is attached to them.

    A regular calendar-- buy February, sell January-- is considered covered and requires no margin other than the initial purchase cost which is obviously present.

    The reverse calendar is not considered covered, even though it is actually covered, more or less, until the first month expires. Because at that point it becomes completely uncovered, they are treated as being uncovered naked writes with the margin treatment being exactly the same as naked writes.

    I'm not an expert on naked writing, but I believe the margin requirement is something like 20% of the current underlying price with adjustments for the distance OTM and premiums received. For high priced stocks like Google or indexes such as the RUT, SPX, and NDX, this amounts to quite a bit of money for even one written call or put. Check the CBOE or your broker for the exact details.
  7. spindr0


    That's one reason. Another is that unless one goes out a lot more than a month on the short leg, the risk always exceeds the reward and the reward is only achieved if the underlying moves dramatically away from the strike before the near month expires. Not good odds.

    I have used them (double reverses) for earnings announcements the week of expiration when the far month's IV is also inflated (soon to expire near month is very cheap). Good ones take a lot of searching to find.