Neither of the scenarios outlined in yesterday’s Update materialized today. While the Dow was down more than 150 points at its lowest, EEM held yesterday’s low and appears to be headed for a close above$134. On the other hand, implied volatility remains near yesterday’s close/high, failing to give us the break we would’ve liked in order to buy a second July calendar spread. Nevertheless, we’ve found a July/August calendar spread that looks like a reasonably good trade.

The Thesis

At our limit price of $1.15, the IYR July/August 61 put spread has break-evens near support in the $58–$59 range and down-trend resistance at $64. And because strikes are $1 apart, we’ll have lots of flexibility if we have to adjust.

The Trade

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

+4 IYR August 61 put
-4 IYR July 61 put
for a net debit of $1.15.

Our break-even points are at $58.10 and $64.10. Our initial delta is essentially neutral.

Remember that we need at least 4 contracts per leg when we open a single-calendar trade, so we can split our position twice if necessary.