How to not get ruined with Options — Part 3b of 4 — Advanced Strategies

In the previous post 3a, I explained simple strategies like cash covered put, rolling, selling covered calls, and bullish and bearish spreads (also called verticals).

Now let’s do some more advanced strategies, they can be quite interesting.

First, let’s quickly introduce the concept of a leg in options. It simply describes a specific combination of expiration / strike / call or put, said differently it groups the same options contract together. A long call or put is a single leg, whether you have 1 contract or 20, it has one kind of contract. A cash covered put, or a covered call have also a single leg. A vertical has 2 legs, one for the short strike, one for the long strike. It used to be that the trading fees were different depending on how many legs you had in your position, like a fixed price per leg plus the number of contracts, or $15 for exercise or assignment per leg regardless of how many contracts. In the past couple of years, the trading fees dropped quite a bit, so it does not seem to be happening anymore, but some brokers may still do that.

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Calendars

A calendar is a 2 leg position. Both legs have the same strike, but they have different expiration dates. The closest expiration is a short position, the farthest position is a long position. It can be constructed with both calls and puts, and will have roughly the same cost either way. But if your strike is far from ATM, you should pick the variant that is OTM to avoid assignment on your short position.

Here is how a calendar looks like:

SELL -1 ABC 100 17 JUL 20 17.5 CALL @…