This All-Star Commentary post features a Trade Note from Nehemiah. Thanks for participating in the TradeKing Community, Nehemiah. I have enjoyed your content.

Nehemiah,

Welcome to the TradeKing Community! Thanks for sharing your trade with us.

As you mentioned in your Trade Note, in this current market it seems like it will not be difficult for the Qs (QQQQ) to stay under $50 between now and Feb expiration. However you should be aware that although there is an upper limit for the Calendar Spread, there is also a lower limit. These amounts are called the Breakeven Points.

If the underlying (QQQQ = 46.55 as of close 1-15-08) is between these points, the calendar spread will likely be profitable. Please check out the image below of our very own Profit and Loss Calculator. I have also included a table of the important numbers for this trade. To access this tool, please go to Tools > Profit + Loss Calculator.

Strategy:

Call Calendar Spread

Long leg

Bought Mar 50 C @ 0.98

Short leg

Sold Feb 50 C @ 0.39

Entry

0.59 Debit

Max loss

0.59

Max gain*

1.05

Lower breakeven*

47.34

Upper breakeven*

53.41

*using P&L Calc; assumes IV = 25%; as of close 1-15-08.

Click here for a larger image. 

I'd also like to highlight some features that are available to you here at TradeKing. Our "Options Guy" Brian Overby regularly writes a blog about options trading. He has an interesting series on Calendar Spreads which starts here.

We also have a great book: The Options Playbook. There is an online version available in our Education section.   Education > The Options Playbook > The Plays > Play #27.

After you have a chance to review this information, please come back with any questions you may have. There are several other resources you may find helpful in our Learning Center (under Education).

As with all of our tools, they are provided to help you make better decisions. However, you will ultimately decide whether or not to put your money at risk in the market.

Once again, welcome! We are happy to have you!

Market data included here is as of the close on 1/15/08.

--Nicole Wachs

TradeKing Staff

All-Star Commentator

Options involve risk and are not suitable for all investors.
Please read Characteristics and Risks of Standardized Options .