Options Trade – AMC Entertainment Holdings Inc (AMC)

Trying something totally outside my comfort zone this week – just placed a Calendar Spread on AMC Entertainment Holdings Inc (AMC).

Here is the trade:

• Bought 10 AMC April 16th, 2021 8.0 Strike Puts for – $720.00
• Sold 10 AMC April 1st, 2021 8.0 Strike Puts for + $460.00
• *Total Debit: $260.00

The max payout I could earn for this trade is $1,085.00 – if AMC pegs at $8.00 on April 1st, 2021. Since I am only risking $260.00, I decided to Take a Flier.

In executing a calendar spread, you buy a longer-dated option and sell an otherwise identical option that expires sooner. Since you are long the longer-dated, more expensive option and short the shorter-dated, less expensive option, you are long the calendar spread.

Buying a calendar spread is a great way to get the difference in option erosion by time to expiration working in your favor. The short-dated option will nearly always have greater daily erosion than the otherwise identical longer-dated option.

So, why don’t I trade calendar spreads more often? Simple, they are complicated, and you must get everything right to make a decent profit. There is no Margin of Safety, this is basically a binary bet. I felt AMC presented a rare opportunity given it is currently being propped up by the WallStreetBets crowd – so the volatility is very high providing an interesting risk / reward entry.

I will keep you posted – if nothing else, this should be entertaining.

*Excludes transaction costs.