Calculating Breakeven for a Calendar Spread

J

Jay Hattler

I am trying to construct a formula for breakeven for a calendar spread in Excel. I think the formula would consist of:

1) Calculating the value of the long option on the date that the short option expires.
2) Breakevens would be the strike price plus/minus that value

Example:
1) Strike is 1300
2) Sell option with expiry in 25 days
3) Buy option (same strike) with expiry in 55 days
4) Calculate the value of the long option 25 days from now. (Assume IV and price of underlying stay the same)
5) Breakevens are the strike price plus/minus that value of the long option four days from now.

Is this correct?

Jay
 
Say you pay 50 for the long option and get 20 for the sold(short) near month option you are owed 30,so at expiry you'd hope your sold option goes out worthless and your far month long option is worth >30. You need to look at relative Greeks-and know that vega is highly unreliable and the Greeks are a 'snapshot' Try inputting the price and duration into iVolatility.com calculator- it's fun and it's free.
 
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