With FB at 159.83 at 11:34 central time today April 9, I did a Live Pre- Earnings Calendar
Step 1: Set up: Buy 1 Apr 27 160 Call, Sell 1 Apr 20 160 Call, 2.82 Debit. Implied Volatility of long call is 47.71 and Implied Volatility of short call is 35.98.
Step 2: Profit Target and Max Loss: Looking to make $30-$40 for every 1 contract, which would be 10-15% on Capital of $282. Max Loss would be around $50 or about an 18% loss on $282. So for a profit, when the Calendar price goes to the 3.15-3.25 area, would take off . When the price of the Calendar goes to around 2.30 from the initial debit of 2.82, I would get out for a loss.
Step 3 is When to Adjust and Step 4 is how to adjust. For today’s trade, I will stick with just step 1 and Step 2 and not get into Adjustments. For people new to this type of a Calendar, let’s learn to walk before we learn to run.