Secret_Agent,

  Since this is the VHC board, I'll attempt to answer your question for both VHC and VVUS.  The first task

is to develop your thesis for the stock in question.  How low do you expect the stock to drop and in what time

frame will that happen?  I'm assuming here that your intent is to profit from a decline in the stock, as opposed to

protecting the evaporation of existing gains.

 

Hypothetical scenario for VVUS.  With VVUS at 24.30, suppose you were expecting a drop down to 20 by the end of the year.  Here's one way to play this: Buy the Jan 2013 Put 24 for about 4.85 and sell the August Put 20 for about .78, for a net debit of 4.07.  As the August Puts expire (assuming VVUS hasn't made it's expected drop below 20 yet), then consider selling the Sept 20 Put, and so forth.

 

Note 2 obvious risks with this spread.  (1) The beta for VVUS stock, at 1.1, is high by its historical standards.  If the stock 'quiets down' in the future, you will see the premiums for the options decline even when the stock doesn't move up.  This would reduce Put 20 premiums for future months as well as the long Put 24. (2) VVUS might rise rather than fall, thus causing your long Jan Put 24 to decline rapidly in value.  In this case, you should sell what's left of your spread only when your thesis has changed and holding the spread doesn't make sense.

 

For VHC, with the stock at 35.30 suppose some bear on the stock is expecting VHC to drop below, say 30 by December OPEX.  A similar strategy then, would be to buy the Dec 35 Put for 7.65 and sell the August 30 Put for 1.05, for a net debit of 6.6.  Similar risks pertain to this strategy as with the one above.  (Different strikes can be chosen to reduce the cost of the spread.  Note that if the same strikes are chosen, say the Jan 30 Put and the Aug 30 Put, then the cost decreases, but if/when VHC drops below 30, then the value of your spread at that point would be all Time Value, as the Intrinsic Value would be the same for each option).

 

Finally, an example using VHC weekly's:  suppose a VHC bull is expecting the stock to rise to 38 by August OPEX.  One strategy is to buy the Aug 38 Call for 2.40 and then sell the July 27 Weekly 38 Call for 50 cents, for a net debit of 1.90.  As each week expires, the investor can determine which Weekly strike to sell for the new week (perhaps if VHC is rising toward 38, the investor might sell a Call 39 or Call 40 strike to increase profit potential). 

 

Generally, the premise for calendar spreads is to a) reduce the cost of owning a long dated option, and b) hope that the stock in question is moving toward your target, thereby increasing the value of the long option, while having the short option expire worthless.