Buy 1 GOOG April 28 835 Call and Sell 1 GOOG April 21 835 Call for $10.80 Debit with price at $834.43.
I just executed this order live at 1:17 pm central Chicago Time today, Monday.
Why did I do this? Why would I pay 26 implied volatility for my long call and sell my short call at an 12 implied volatility?
Because Earnings is coming next week and that will keep the April 28 Expiration Options high while the April 28 Options expiring this Friday will not be affected by next weeks earnings and the Implied Volatility should stay low or go down.
How does this benefit me? For this Calendar Trade, I will have very little concern that I will lose money from Volatility decreasing and thus hurting the trade.
Will I still have Price Risk? Absolutely.
I paid $10.80 Debit or $1080 for this spread for every 1 contract. My goal would be to make 8-10 percent profit on my investment of $1080. So, I will have an order in immediately to sell out this Calendar for around $11.65 Credit for the rest of this week.
That would be about an 8% profit on Capital used for this trade. If this spread trades around $9.60 or lower, I would get out and take my loss, around 10% on the Calendar cost of $1080.
Obviously, if the spread is trading lower than the initial debit of 10.80 but hasn’t got to 9.60 yet, I could adjust or try to fix this trade by re-positioning the Calendar. This involves taking off the 1080 Calendar completely and entering a new Calendar at the strike closet to the current price of GOOG when you are making this adjustment.
This trade is a Calendar trade that tries to eliminate one of the two main foes of this strategy, Volatility, by buying an expiration affected by earnings and selling an expiration that expires before earnings.
This strategy still has Price Risk, so we need to have a plan and exit the trade if the Debit of the Calendar decreases too much as the price of GOOG moves too far above the strike of 1040 or too far below the strike of 1040.