Options Strategy Labs: 2007

This lab compares two strategies with similar profiles: a horizontal calendar spread and a butterfly spread. Both positions try to collect premium from short options and protect them with long options, but they protect against large losses differently. Calendars have long options in later-expiring months, while butterflies have long options at different strikes above and below the market.

A previous options lab ("Directional butterflies on the S&P 500," Options Trader, November 2006) used technical analysis to place directional butterfly trades in S&P 500 index options, an approach that gained 213 percent (40.1 percent annualized) over a five-year test period.

This lab tests directional calendar spreads on the S&P 500 using some of the same rules.