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Different versions of Calendar spread

By Preetika Mishra In Business & Finance Posted On June 02,2017 0 Comments

Trading through options becomes an important tool to investors in case the market collapses.

When the investor buy and sell the similar type of option (calls or puts) for the same underlying security having the similar strike pricing , but at different expiration dates this types of investing techniques is called as “Calendar Spread”. This is the only reason why this type of investing techniques in the options is also called as a time or horizontal spread because of varied maturity dates.

It is usually done by purchasing the longer-term option and selling a shorter-term option of similar type and exercise price.

Investor invest utilizing this type of strategy just to gain the advantage of expected changes in volatility and time decay of the asset , while minimizing the impact of movements in the underlying security. The main aim for the underlying asset is to be, nearest strike price at time expiration and take gains of near term time decay.

It is the techniques for the seasoned options investor who demand different levels of volatility in the bottom-line options at changing points in time, with restricted risk factors in either direction therefore it is also called “Neutral Strategy”. The Objective behind it is to make profit from a directional price movement of the underlying security to the strike price of the calendar spread with limited risk if the market goes in the other direction.

This technique of investment is the options strategy and a magnificent way to the combination of advantages, spreads and directional option trades in the same position. Depending on how it is implemented, the strategy, investor can have either:

1.Neutral position in the current market and the investor can roll out few times to compensate the cost of the spread with the advantage of time decay of the underlying asset.

2.Either they can have short-term neutral position in the trading market having a long-term directional bias that is provided with unlimited gain potential.

“Time Spread” (Long Calendar Spreads)

Time Spread or the long calendar spread as it is so called is the buying and selling of a call option or the buying and selling of a put option of the same strike price but differ in expiration dates. Overall the investor is usually selling a short-dated option and buying a longer-dated option of the underlying security, net result is the debit to the account.

Time spread or so called long calendar spread techniques is of two types: call and put. The put calendar trading of the underlying security or the asset is the better choice over a call calendar, but both are equally acceptable in terms of trading profit potentials.

This is the best strategy in adverse market conditions and work best when the investor short term sentiments is neutral and expect prices to expire at the value of the strike price and trading expiration month. For more information related to calendar spread contact our experts.



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