Sell an option, buy another option at same strike but with later expiry
Idea is that time will erode value of nearer term option faster than later term
Neutral calendar spread
calls near the current stock price
Plan to close near the expiration of near term option
Best to establish with near term expiration about 8-12 weeks out because rate of delay increases substantially under 8 weeks
If the stock falls substantially, best option might be to do nothing. Closing out the position could be expensive, closing out just the long call might leave an uncovered call
Bullish calendar spread
Calls above the current stock price
Requires the stock doesn’t move above strike until the nearer expiry but moves above strike by the later expiry
Pick a volatile stock that has the potential to make the required move up
Do not use options more than one strike above the current stock price
Do not put large investment in calendar spread since it has a low probability of success