Are Puts Better Than Calls for Calendar Spreads?
A long time ago, I wrote that, indeed, puts were better than calls for most calendar spread. At that time, the market was in a “normal” trading mode (with a slight bullish bias), and at that time, put calendar spreads were less expensive than the same-strike call calendar spreads, so I concluded that puts were better choices than calls at that time for near-the-money spreads. (Deep in-the-money calendar spreads are not recommended because of the difficulty of getting decent prices when rolling over the current month options to the next month.) For calendar spreads with strikes well above the stock price, calls are preferred, while puts are preferred for strikes well below the stock price. Today, things are different. There is a distinct bearish mode out there. Last Friday, the cost of an at-the-money 89 SPY calendar spread (March 2010 – June 2009) with the stock trading at $89 was $5.95 for calls and $7.30 for puts. Clearly, the call spread would have been the better one to buy. The cu
