Adding credit spreads to calendar spreads. $TSLA

There was a guy in my west Austin neighborhood that had a Tesla Roadster just like in this picture. Same color. It was the first time I had seen one. Can’t remember the year, maybe around 2008-09? 

Yesterday I alluded to one of my favorite techniques that I use when I am going to roll a short call or put expiring the next Friday. I usually have this short call/put because in the past I have put on a calendar spread and now this is the near dated option that is near expiration. 

When these options are out of the money they are not yet valued at zero, that won’t happen until late on Friday. The simple way to handle this is to roll the call/put to the next week’s contract at the same strike price. 

But what I have become fond of doing is augmenting the trade with a credit spread that expires the following week. This gives me the ability to sell the next week’s option for a slightly higher price. 

Sounds confusing? Let’s look at one of these that I just put on today in TSLA. Today is Wednesday Feb 28. 

I am short the 360 call that expires on Friday Mar 2. This was set up as the near dated option in a calendar spread with the longer dated option being the April 20 360 call, which I am long. TSLA is down for the day about 1.5% 

This short call still has 75 cents of value and I could roll the call till next week and collect about $3.10 for a total credit of $2.35. 

Instead I sold the Mar 9 (next week) 362.5 call and bought the 367.5 call (again, next week) and collected $1.02 for that spread. It costs me $5 in margin requirements to hold this credit spread.  

Come Friday I have more options on my option. I can close out the credit spread by selling the 367.5 call now valued at about $1.88 or keep the credit spread and roll the 360 call to next week, or the week after or roll it to the 370 call next week. 

Another choice would be to keep the credit spread and open another put credit spread to make an iron condor. In fact, should TSLA stay down here, this will be my first choice. 

Happy Trading! 

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