Despite having triggered two adjustments on our June/Sept 140/150 double-calendar, EEM was pretty good to us this month, yielding a 16.72% return on total capital risked. As we noted Monday morning, we would’ve liked to roll the short options out a month, but the EEM July/Sept 140/150 double-calendar is looking too bullish for our taste right now.

We could have rolled the short puts at 140 and monkeyed around with all the other adjustments that would be needed to set up a better July position—but it would’ve involved a lot of complicated trading, and we thought it was easier just to close the entire position and open a new one for July.

The Thesis

Average implied volatility for EEM options has been rising, but it’s still in the bottom 1/3 of its 12-month range. A 140/145 double-calendar would be close to neutral, but it would give us only about $6 to the downside before an adjustment would be called for; the 135/140 double-calendar has more downside room, but at the expense of range to the upside.

A single-calendar put spread at 140, on the other hand, could tolerate a drop of more than $10 in the share price, and its upper adjustment threshold is actually higher than it would be with the 140/145 double-calendar. And even though it’s a bearish-leaning position overall, our initial delta is actually quite small.

The Trade

We’re opening the following Calendar Options position for July expiration:

+4 EEM Sept 140 put
-4 EEM July 140 put
for a net debit of $4.35.

Our break-even points are at $131.80 and $149.80. The initial delta for the reference position is about -8, and theta is more than 13.

Remember that we need at least 4 contracts per leg when we open a single-calendar trade. This gives us enough contracts to split our position twice if adjustments make it necessary to do so. Also note that we may be able to close half of our position at our 15% to 20% profit target and go for a higher profit with the other half, in which case we’d need at least 8 contracts per leg (so the remaining position is still adjustable).

Nevertheless, we never want to risk more than we’re willing to lose in a worst-case scenario, and we strongly advise anyone who wants to follow Calendar Options trades not to risk their hard-earned savings unless and until they have a good understanding of the strategy. (”This is not a recommendation to buy or sell any investment, etc., etc. . . .”)