Calendar spread trading
Buying one month's contract and selling another month's of the same underlying, exposing the trader only to basis risk from the spread rather than to outright price movement — which is why the margin is much lower than…
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Diagonal spreadTwo options of the same type on the same underlying with both a different strike and a different expiry — the most complicated of the three spread families, and the only one that varies on both axes.
- Horizontal spreadTwo options of the same type and the same strike but different expiries — a position whose entire value is the difference between the two legs' time values, not a view on direction.
- Long straddleBuying a call and a put at the same strike and the same expiry — a bet that the underlying moves a long way in either direction, with two break-even points and a maximum loss equal to both premiums.
- Long strangleBuying an out-of-the-money call and an out-of-the-money put with the same expiry but different strikes — the cheaper cousin of the straddle, with a wider band of loss between two break-even points.
- Vertical spreadTwo options of the same type and the same expiry but different strikes, one bought and one sold — a limited-profit, limited-loss position that trades away part of the upside to cut the cost or cap the risk.
Where this is taught
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