Calendar and Diagonal Spreads

It was brought up to discuss the mechanics of calendars and diagonals. I have posted a few times about this, but since I did the webinar last Thursday, there may be many that are new to this.

Calendars (some times called horizontal) spreads are no more complex than to know you are buying a farther out month (say Jan '09) and then selling a closer month (June '08) Same strike different month. Example buy a Jan '09 50 strike and sell a June '08 50 strike.

A diagonal is no more complex. The difference is we are now selling a different strike. Example.. Buy the Jan '09, 50 strike and sell the June '08, 55 strike.

That's it simple and very basic. the challenge comes in to play on how you as an investor wants to play these. that is where the experience comes in.

Are you very bullish, mildly bullish or neutral. Are you an aggressive trader or one that wants to preserve capital or maybe hedge against something else.

If you are very bullish, then you look to diagonals. If you are aggressive, you take on a wider spread. Example.. Instead of the Jan 50 and the June 55, you could go Jan 50 June 60 etc.

You can be neutral or mildly bullish yet still be an aggressive trader thereby doing a calendar but closer to the money (conservative) or farther out of the money (aggressive)

You can also decide how aggressive you are as a trader or on each trade. More conservative you would want to go farther out months say leaps etc.

So I gave you some knowledge here to blow yourself up. Try to virtual trade and find out
First, am I an aggressive trader. I myself am very conservative
Second am I bullish or bearish a certain sector.
Third how bullish or bearish am I
Fourth, how aggressive am I on the underlying investment.

Do not despair, we will discuss these at great length. For now, start to virtual trade and find where you are on the speculation spectrum.

Feel free to refer your friends to this site