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Calendar Call Spread

  • 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