This week in The War Room, we closed out a bull (vertical) spread on Raytheon (RTX) for a near 64% gain in 143 trading days.

We have since re-entered the trade with a calendar spread using the profits of the bull spread… essentially, a free ride.

The truth is…

If you’re not using spreads, you really should take the time to explore this strategy. This year we’ve closed out two spreads of triple-digit gains, in addition to the one on RTX.

What are Conventional Spreads

Simply put, a conventional spread is the distance between two points.

In the options world, it is the distance between two prices. For example, in the RTX trade, we bought the $80 calls and sold the $95 calls against our position. At the time, RTX was trading in the $80s.

We went with a spread because the options were very expensive. By using a spread, we reduced our cost significantly, and we also reduced our break-even point to increase our chance for success.

However, we also limited our upside as a result. Nothing is free on Wall Street – so if you want to reduce your risk, you will reduce your return as well.

In this case we risked $7 to make $15. The $7 was the difference in price between the $80 calls we bought and the $85 calls that we sold. Instead of waiting until expiration, we sold the spread for over $11 to quickly lock in a gain of almost 60%.

Next, we rolled those profits into another spread strategy that I use. It requires buying one option and selling another option.

But, there is one major difference…

The options that I buy and sell have two different expiration dates but the same strike price. This trade is called a calendar spread.

How a calendar spread works

Let me give you an example trade on a hypothetical stock, XYZ, that is currently trading for $15.

When you engage in a calendar spread for XYZ, you would buy the $20 strike options expiring in 2026 for $2 and sell the XYZ $20 strike calls expiring in 2025 for $1.

The goal is the shares of XYZ which are currently at $15, will close below $20 at expiration in 2025 thereby lowering your cost to $1 and allowing you to have an unencumbered position for the rest of 2025 and into 2026, at a lower cost.

Again, we are lowering our cost… taking dollar risk off the table, while maintaining a bullish profile for the trade.

Spread trading isn’t for everyone, but It’s a great way to reduce your cost while increasing your upside or generating income.

Before you enter a spread trade, you need to be confident in how they’re set up and you also need permission from your broker – which is something you get when you show them you know what spreads are all about.

YOUR ACTION PLAN

Spread trades are one of many tactics we deploy in The War Room.

And you are new to this style of trading, don’t worry… our War Room headquarters is stocked with videos and written tutorials to walk you through every step of a trade.

And, of course, we have the best real-time platform, tacticians and moderators in the business. I cover trades just like this in real-time anytime the markets are open, and an opportunity presents itself.

This year alone, my partner Bryan and I have closed 82 winners for a 79.6% win-rate. And we are just getting started!

If you want to get in on the register ringing action, join The War Room here!