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Calendar Spread

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Calendar Spread

A calendar spread is an options trading strategy that involves buying and selling options of the same underlying asset, with the same strike price, but with different expiration dates. The goal of the strategy is to take advantage of the difference in the time value of the options. The strategy is also known as a time spread or horizontal spread.

The calendar spread is a neutral strategy, meaning that the trader is not expecting the underlying asset to move in any particular direction. Instead, the trader is looking to take advantage of the time decay of the options. The trader will buy an option with a longer expiration date and sell an option with a shorter expiration date. The trader will then benefit from the difference in the time value of the two options.

The calendar spread can be used in a variety of ways. It can be used to hedge against a position, to speculate on the direction of the underlying asset, or to take advantage of the time decay of the options. The strategy can also be used to generate income, as the trader will collect the difference in the time value of the two options.

History of Calendar Spread

The calendar spread has been around for many years, but it has become more popular in recent years as options trading has become more accessible to the average investor. The strategy was first used by professional traders, but it has become more popular with retail traders as well.

The calendar spread is a relatively simple strategy to understand and execute. It can be used in a variety of ways, and it can be used to generate income or to hedge against a position. The strategy is also relatively low risk, as the trader is not expecting the underlying asset to move in any particular direction.

Comparison Table

Strategy Risk Reward
Calendar Spread Low Moderate
Long Call High High
Short Put High High

Summary

The calendar spread is a relatively simple options trading strategy that involves buying and selling options of the same underlying asset, with the same strike price, but with different expiration dates. The goal of the strategy is to take advantage of the difference in the time value of the options. The strategy is also known as a time spread or horizontal spread. The strategy can be used to hedge against a position, to speculate on the direction of the underlying asset, or to take advantage of the time decay of the options. The strategy is also relatively low risk, as the trader is not expecting the underlying asset to move in any particular direction.

For more information about the calendar spread, you can visit websites such as Investopedia, The Options Industry Council, and The Motley Fool.

See Also

  • Long Call
  • Short Put
  • Straddle
  • Strangle
  • Butterfly Spread
  • Iron Condor
  • Covered Call
  • Protective Put
  • Bull Call Spread
  • Bear Put Spread

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