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training_data/curated/text/05a4f1b5b20fe5fd5bb54a35338ee60d0ef9cf163b4c3a5f71aed29b163d4263.txt

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+December call go to zero, the position is still a profitable trade because of
+the continued month-to-month rolling. This is now a no-lose situation.
+When the long call of the spread has been paid for by rolling, there are
+three choices moving forward: sell it, hold it, or continue writing calls
+against it. If the trader’s opinion calls for the stock to decline, it’s logical to
+sell the December call and take the residual value as profit. In this case,
+over three months the trade will have produced 4.50 in premium from the
+sale of three consecutive one-month calls, which is more than the initial
+purchase price of the December call. At September expiration, the premium
+that will be received for selling the December call is all profit, plus 0.50,
+which is the aggregate premium minus the initial cost of the December call.
+If the outlook is for the underlying to rise, it makes sense to hold the call.
+Any appreciation in the value of the call resulting from delta gains as the
+underlying moves higher is good—$0.50 plus whatever the call can be sold
+for.
+If the forecast is for XYZ to remain neutral, it’s logical to continue selling
+the one-month call. Because the December call has been financed by the
+aggregate short call premiums already, additional premiums earned by
+writing calls are profit with “free” protection. As long as the short is closed
+at its expiration, the risk of loss is eliminated.
+This is the general nature of rolling calls in a calendar spread. It’s a
+beautiful plan when it works! The problem is that it is incredibly unlikely
+that the stock will stay right at $60 per share for five months. It’s almost
+inevitable that it will move at some point. It’s like a game of Russian
+roulette. At some point it’s going to be a losing proposition—you just don’t
+know when. The benefit of rolling is that if the trade works out for a few
+months in a row, the long call is paid for and the risk of loss is covered by
+aggregate profits.
+If we step outside this best-case theoretical world and consider what is
+really happening on a day-to-day basis, we can gain insight on how to
+manage this type of trade when things go wrong. Effectively, a long
+calendar is a typical gamma/theta trade. Negative gamma hurts. Positive
+theta helps.
+If we knew which way the stock was going, we would simply buy or sell
+stock to adjust to get long or short deltas. But, unfortunately, we don’t. Our