Grow your business, income, & life.

Behind-the-scenes training to grow your business and generating income. Strategies and mindsets that work.

Calls vs Puts with Calendar Option Spreads – Does it Matter? Ep 40

Welcome to another episode on Hungry for Returns, where I answer your trading and investing questions on the stock market or investing.

If you have a specific question, you can submit a voice question here!

Let’s go to the question for today. It’s all about calls vs. puts and why a lot of times, it doesn’t matter.

Here’s a question from Greg:

“Hello, Sasha! My name is Greg. I have a question on how in calendars you refer to doing puts or calls the same.

Does that mean they end up with the same result?

For example, for Amazon, if I was to do a $1,900 calendar if I put it in as a call or a put, would I still have the same results say two weeks later?

Thanks for taking my question. I appreciate everything you do!”

Here’s what I want to share with you.

The pretty much, yeah. It is going to be the same.

Calls & Puts – In Details

I want to give you a background. Calls and puts it’s not going to matter too much when you’re doing spreads. That’s the short answer.

There is an issue when you get close to expiration week. That’s because things are in the money. And when you’re in the money, remember those contracts have obligations even if you’re doing a spread. Anytime you’re short one; you’re going to be obligated.

Overall profit and loss – not a big difference. Overall getting in and out and that could be a more significant issue and problem. But overall, it’s not a big thing if you’re trading liquid stocks.

Let me give you a breakdown here. I’m going to hide the current position. We do like to let’s say an 1850 call here. We do the same thing on the put side. Analyze trade, and we will do the puts.

You can see one is slightly different than the other.

You’re getting calls, and you’re doing for about $28. Your max profit at these points around $3143, risking about $2800.

Let’s take a look at the put side. You’re doing about $3150, risking about $2440. On the calls, the risk is $300-$400 more. The profit on the put side potential is around the max profit of around $3000 and on the call side around $3100. You can see they’re very similar.

Now, why is there a big difference? Well, the big difference is when you’re doing, let’s say 1850.

The big difference is that the put side is in the money. That’s a big difference. Overall you can see profit and loss is not that big of an issue. It’s minor, but keep in mind the theta and all the other things go with it.

It’s not like one is better than the other, just on the profitability side. If you look at this one right here on the call side, we have a theta of 5.8, and of course, these are wiggling. And this one’s 5.47. So even though it may cost less, one has maybe 20 or 30 cents more theta here and there. And 0overall it’s not going to matter that much. 

Here’s where it does matter.

This one at 1850 is in the money if you’re on the put side. And getting into things that are already in the money is a little tougher. That’s because they’re traded a little bit less. That’s one thing. The other thing is that because it’s in the money, it has obligations. Let’s say you put this trade 40 days out. If they’re buying these contracts to hold for 40 days, they’re not going to execute their right most of the time.

I’m not saying it won’t happen. But 99% of the time, it’s not going to pan out to where you’ll get an assignment. But the issue happens is if you wait until let’s say five days before expiration, you’re going to have a much bigger problem with the ones that are in the money.

Whereas the ones out of the money will have less of a problem. So which one would I do? Which one would I go with?

I typically like to stay out of the money. That way, I don’t have contract problems. But in certain situations, it may be fine. If you can’t get filled and if you need to hedge, it may be fine to go in the money as well.

When Would You Go in the Money?

In certain rare situations where you can’t get filled, there’s just more trade there, or maybe the stock is going to move in that way and blow past it. In that case, you could go the other way. The other times when I do go in the money is sometimes when I have a ton of positions. Let’s take the call side. I have a ton of positions on the call side, where it’s just so confusing.

And I want to put a few more different positions. Let’s say I’m doing 25 different calendars on here, and they’re all spread out amongst these. To manage it properly in the same account, if you want to do a butterfly or vertical to hedge, you might go in the money on the put side. That one is the puts even though I did it in the money to vary it up because to see all those contracts, it can get confusing. And that’s when you’re trading a lot larger.

That’s some situations when you may want to go in the money. Otherwise, profitability wise it’s not much different. You can see this one – you make $3141. And the other one you can make about $3109.

Capital usage is $2800, and this one is $2440. There’s a small difference.

Final Word

The big issue and difference is getting in and out of the position. That’s because if you’re in the money, it’s a little harder getting in and out. 

And, of course, contract obligations. If you’re getting close to expirations, anything in the money you’re going to have a little bit of a problem with.

Usually, it’s better to stay out of the money. But profitability wise, it doesn’t matter that much.

Join other stock who get a trading edge each week with our newsletter

Get our free stock market tip, video reviews, and exclusive announcements.

No spam, no gimmicks, no junk - Unsubscribe anytime

I'M SASHA.

Thanks for joining me on my trading website where I share with you about trading stocks and options.

DOWNLOAD 100 Stock trading tips Book

Ready to check out some of our best-selling books that can help you become a better and more profitable trader? Check them out by clicking the link below… 

Video recaps on the recent market trends

Summary of recent market activity looking at swing chart opportunities, potential setups, and technicals.

Stock market picture charts annotated

Quickly review screen captured stock charts with annotations. Includes support, resistance, ABCD patterns, and possible breakouts.

want some helpful advice?

Pay-Per-Minute Coaching

I am scheduling helpful coaching sessions for people who are interested in real-world advice & guidance where you only pay per session. No long term commitment required.

This website and content is for information purposes only as Rise2Learn, TradersFly, and Sasha Evdakov are NOT registered as a securities broker-dealer nor an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Rise2Learn, TradersFly, and Sasha Evdakov cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Rise2Learn, TradersFly, and Sasha Evdakov in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Rise2Learn, TradersFly, and Sasha Evdakov accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Ready to Learn Profitable Strategies to Trading Stocks?

If you are serious to learn how to trade stocks more profitably, make more money, and trade with confidence...

 

Then sign up to get our free educational videos!

AWESOME!

In order for you to get your goodies and freebies you have to confirm your email address.

 

To confirm your email address, just go to your email inbox (or check your spam) and click the link that's inside the email that states you want to receive messages from us.

 

That's its!

Just one more thing... 

Ready to Get Our Educational Videos Each Week?

If you are serious to learn how to trade stocks more profitably, make more money, and trade with confidence...

 

Then sign up to get our free educational videos!

5853

AWESOME!

In order for you to get your goodies and freebies you have to confirm your email address.

 

To confirm your email address, just go to your email inbox (or check your spam) and click the link that's inside the email that states you want to receive messages from us.

 

That's its!

Just one more thing...