Multiple Option Trade
Next, let’s consider a trade involving two options. One option will be a long call that expires in a distant month, and the other option will be a short call in a near month. Both options have the same strike price. This type of trade is known as a calendar spread.
Example 2. This example of a calendar spread is presented and discussed in Chapter 12, “Calendar Spreads.” Our goal here is just to look at the risk graph and see how to read it.
The stock price of XYZ is expected to trade within a narrow range around $35 for the next several months. In early May with XYZ at $34.70, the following trade is initiated. You buy 1 Nov 35 call for $3.50 per share and sell 1 Jun 35 call for $1.30 per share. Your net cost and maximum risk ...