Rolling a Put Calendar Spread Option Strategy with Extra 60% Return

On a previous post, I talked about a Put Calendar Spread trade on IWM (the ETF of the Russell 2000 Index). On Wednesday the 12th of April, with still 9 days left on strategy, I decided to buy the short term sold options back and take a sweet profit of $726.

I made this decision despite the fact I still believed IWM could trade in a range for some time. My reasoning was that due to some market noise in the very short term (only 9 days left on the sold options) the underlying security could move towards the breakeven points negatively impacting the position without any chance for me to adjust it.

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Let's Adjust the Calendar to Roll it Over

All this considered, I did not buy back the purchased options on my strategy, but actually decided to sell more options towards the long-term ones purchased earlier which were still in my portfolio. With this move I could achieve two goals: first to stay in the trade for longer and try to collect some extra profits, second having more time to defend the position in case of the underlying trading outside of the desired range and against the position.

I went on rolling the Calendar Spread over as I believed that IWM would keep trading in a range. To do that, I had to sell more short-term options having the very next expiration date.

On Wednesday the 12th of April, with the underlying trading around $176, I sold 6 contracts of the $174 put options expiring on the 19th of May 2023 - 37 days left before expiration. On the other leg, I have the 6 contracts purchased of the previous Put Calendar Spread with the same strike price at $174 but expiring on the 18th of August 2023 - 128 days left before expiration.

We create a beautiful trade of which you can appreciate the risk profile and wide profit area on the video above. By rolling over the short-term options sold, we now have an additional 28 days on the trade. This gives you more protection in case the trade does not turn out as planned, as you can use the extra time to adjust your trade.

A "New" Enhanced Calendar Spread

On the new Put Calendar Spread, there is a maximum profit potential of $2852 and an entry debit/max risk of $1662. The risk/reward ratio on this new trade is an outstanding 171.60% to be achieved in 37 days (on the previous Calendar the risk/reward was 68% “only”). Once again, the goal is for the underlying to keep trading between the two breakeven points which are now much larger than before - downside BEP $163 and upside BEP $189 - creating a larger profit area and putting the odds of the trade in my favor.

With this trade I could make approximately $19 a day - Theta Positive - just for the effect of time decay as long as IWM keeps trading in a range and could potentially make an additional $111 profit a day in case of an increase in implied volatility. Of course, this might work against the position as well in case implied volatility declines. However, once again the odds are in my favor as IV was relatively low at the moment the trade was started. It could decrease a tiny bit, but there are higher chances that volatility could increase boosting the position further. On Monday the 15th of May 2023, with IWM still trading around the $175 mark, I decided to exit the strategy completely collecting an additional $900 profit. That’s a 60% return extra!

Rolling Calendar Spreads over is an interesting strategy which I encourage you to explore further. On the options management software I recommend in my course, you can actually back test these strategies and understand what works and what doesn’t in different market conditions.

I’ll see you on my next release of the Options Trading Diary.