The Call Calendar starring American Axle

For those that don’t trade Options this post may not interest you, but I want to show how using a Call Calendar can help get a low-cost entry in a stock – every trader should want that.

Here is how it works:

  • You sell a front week/month Call option
  • You buy a further dated Call option
  • This will be done for a debit

I do this type of trade frequently and will provide an example of a current trade in $AXL:

  • I am short the June 18 Call
  • I am long the July 18 Call
  • This trade cost me $.34 when I put it on 6/6/2013

Here is how it has played out so far:

The short June 18 Call will expire today as price is hovering near the 17.3 level (OTM or out of the money). This will leave me with the long July 18 Call to play for a rebound. There are several steps I can take now (or do nothing):

  • Sell July Puts which makes a Risk Reversal
  • Sell the July 19 Call to make a Call Spread
  • Sell the July 18 Call I own, take the gain now (currently trading at $.45)