Calendar Spreads
What It Is
A calendar spread involves buying a long‑dated option and selling a short‑dated option at the same strike price.
Why It Matters
It profits from time decay differences and stable price behavior.
How It Works
- Buy a longer‑term option
- Sell a shorter‑term option
- Short option decays faster
- Profit if price stays near the strike
Key Components
- Time decay differential
- Same strike, different expirations
- Volatility impact
- Neutral outlook
Example
Buying a 90‑day call and selling a 30‑day call at the same strike creates a call calendar spread.
Key Takeaways
- Profits from time decay.
- Works best in low‑movement environments.
- Sensitive to volatility changes.