Calendar Spread In Options

A calendar spread is a trading strategy for futures and options to minimize risk and cost by buying two contracts or options with the same strike price and different delivery dates.

Calendar spread in options. If the trader buys a near term option and sells a longer term option the position is a short. When you invest in a calendar spread you buy and sell the same type of option either a call or a put for the same underlying stock at identical strike prices but with different expiration dates. Calendar spread involves options of the same underlying asset the same strike price but with different expiration dates.

Setup of a calendar spread strategy. A long calendar spread is a low risk directionally neutral strategy that profits from the passage of time and or an increase in implied volatility. A long calendar spread is created when we sell the front month and buy the back month getting a debit.

By drew hilleshiem march 1 2018. It is sometimes referred to as a horizonal spread whereas a bull put spread or bear call spread would be referred to as a vertical spread. The longer dated option and benefits from volatility expansion.

Calendar spread options can be done with calls or with puts which are virtually equivalent if using same strikes and expirations. Usually you ll sell a short term option while purchasing a long term option. A calendar spread is a strategy involving buying longer term options and selling equal number of shorter term options of the same underlying stock or index with the same strike price.

If the trader sells a near term option and buys a longer term option the position is a long calendar spread. These are positive vega strategies which benefit from an increase in implied volatility. A calendar spread is an options strategy that is constructed by simultaneously buying and selling an option of the same type calls or puts and strike price but different expirations.

Calendar spreads can also form part of your weekly trading arsenal. If a call or put is sold with near term expiration it is called front month. But you still want the stock to stay within a specific range.