Is that magic spread possible?

[newwurldmn]

Not true, several reasons for calendars to trade at zero. I was trading CNSB 85 call line for a credit yesterday and it was also offered in the COB for a small credit as well for some time before it traded. This is a takeover stock, with an all cash offer so very little risk buying a time spread for 0, but depending on how a takeover is structured there could be a substantial risk being long a time spread it you don't exercise your calls at the right time.

There also may be some risk in buying a call time spread in a hard to borrow stock. If you are assigned on your short calls, your clearing firm might auto liquidate your position for you.

What company is CNSB? I can't find that ticker on Bloomberg. Do you mind showing these markets that are offering same strike calendars for negative value.

A longer dated American option should always trade at a greater price than a shorter dated because if you had to choose between them for the same price you would always pick the one that has more time to payoff.

 

[FSU]

What company is CNSB? I can't find that ticker on Bloomberg. Do you mind showing these markets that are offering same strike calendars for negative value.

A longer dated American option should always trade at a greater price than a shorter dated because if you had to choose between them for the same price you would always pick the one that has more time to payoff.

Sorry mistyped, should be CBST Cubist Pharmaceuticals. There was a seller of the Jan 2016 85 calls. It was possible to put both the Jan/May and the Jan/Aug call spreads for a credit. Both spreads were actually offered in the COB for a credit and not taken right away.

The point is these spreads do exist, generally in take over and hard to borrow stocks. They are not without risk.

 

[newwurldmn]

I looked those CBST prints. Interesting. Deep in the money American options with decently wide bid-offer. Looks like luck involving bid/offer. As to how it was in the COB and no one lifted that spread I don't know. Maybe the algo's wanted to spend time with their families.

That was a good find. That's a real arb opportunity.

 

[Gimpyron]

Sorry mistyped, should be CBST Cubist Pharmaceuticals. There was a seller of the Jan 2016 85 calls. It was possible to put both the Jan/May and the Jan/Aug call spreads for a credit. Both spreads were actually offered in the COB for a credit and not taken right away.

The point is these spreads do exist, generally in take over and hard to borrow stocks. They are not without risk.

I'm glad you read this article and sharing with us your thoughts. my first question is how come that CREDIT calendar spread can provide you any risk? (arb thing)
Second, optionsxpress did liquidate my long position once, i had enormous amount of position in my portfolio, a simple chat with representative solved this case and brought me the right gain

 

[FSU]

I'm glad you read this article and sharing with us your thoughts. my first question is how come that CREDIT calendar spread can provide you any risk? (arb thing)
Second, optionsxpress did liquidate my long position once, i had enormous amount of position in my portfolio, a simple chat with representative solved this case and brought me the right gain

List of possible risk of being long a calendar spread for a credit:

A European index, for example the SPX, currently the SPX DEC 17, DEC 16 3500 put spread is trading at a $30 credit. Deep in the money put calendars will trade at credits, mainly due to current interest rates.

Take over stocks, especially ones that have "stub" deals. Here you must exercise your longs at a certain time. If you don't you could miss out on a substantial amount of money. You would actually have an opportunity if your shorts are not assigned, but depending on the amount of money you have and what type of account, your firm may not allow you to exercise.

Hard to borrow stocks if you are assigned your clearing firm may auto liquidate you on the opening after the assignment, since you don't have the money to accommodate the position on the opening. This would mean a market order to buy the stock and a market order to sell your long calls.

Much of the risk is not having enough money/PM account that will allow you to exercise when necessary or hold a position if assigned.

 

[Gimpyron]

List of possible risk of being long a calendar spread for a credit:

A European index, for example the SPX, currently the SPX DEC 17, DEC 16 3500 put spread is trading at a $30 credit. Deep in the money put calendars will trade at credits, mainly due to current interest rates.

Take over stocks, especially ones that have "stub" deals. Here you must exercise your longs at a certain time. If you don't you could miss out on a substantial amount of money. You would actually have an opportunity if your shorts are not assigned, but depending on the amount of money you have and what type of account, your firm may not allow you to exercise.

Hard to borrow stocks if you are assigned your clearing firm may auto liquidate you on the opening after the assignment, since you don't have the money to accommodate the position on the opening. This would mean a market order to buy the stock and a market order to sell your long calls.

Much of the risk is not having enough money/PM account that will allow you to exercise when necessary or hold a position if assigned.

All right, so if i get you correctly the risk is losing the opportunity for gains (due to broker policy).
Another thought of mine is selling the calendar spread 2-3 days before expiration, when theta made it's job in my favor.
According to the plan, even a low debit spread will eventually be profitable