Options Academy
Ratio Calendar Spreads 102: Break-evens & Collateral
The break-even point is dynamic in a ratio calendar. You must plan collateral to a defensive action point, not just current price.
Break-even Is Dynamic
Because the long and short expirations differ, the break-even point changes with time.
Early in the trade, the short calls still have a lot of time value, so even a small rally can hurt.
As time passes, near-term time decay helps, and the break-even rises.
Early in Trade
Break-even is lower
Later in Trade
Break-even moves higher
Why
Near-term time decay
Result
More room over time
Example Break-even Table
Using the 45/50 calendar example with a $0.50 credit, the break-even at April expiration is around $53.
A pricing model can estimate break-evens at different times.
90 Days to Exp
Break-even ~$45
60 Days to Exp
Break-even ~$48
30 Days to Exp
Break-even ~$51
At Exp
Break-even ~$53
Collateral Planning
The collateral requirement is the naked call requirement minus the net credit.
You should plan collateral to the price where you will take defensive action.
Example: if you will exit at $53, calculate margin as if the stock is already at $53.
Collateral Example
Assume at $53 the April $50 call is worth $3.50.
20% of $53 = $1,060, plus $350 premium, minus $50 credit = about $1,360.
20% of $53
$1,060
Call Premium
+$350
Credit Offset
-$50
Collateral Needed
$1,360
Key takeaways
- Break-evens change over time in ratio calendars.
- Use a pricing model or estimates to map break-even by time.
- Plan collateral to your defensive action point, not just current price.
- Naked call margin is reduced by the net credit but can still be large.
Series
Ratio Calendar Spread Masterclass
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