Trading Strategies
What is Calendar Spread?
Buying and selling options at the same strike but different expirations.
📖 Complete Definition
A calendar spread (or time spread) involves selling a near-term option and buying a longer-term option at the same strike. It profits from time decay (theta) of the short option and/or IV expansion. Calendar spreads are often used around earnings to exploit the term structure of implied volatility.
💡 Examples
- →Sell May $100 call, buy June $100 call for $2 debit
- →Profit if stock stays near $100 and May option decays faster
❓ Frequently Asked Questions
How do calendar spreads make money?
They profit from theta decay of the short option, IV expansion, and/or the stock staying near the strike. The longer-dated option retains value while the shorter-dated option decays.
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