Tame The Time Factor: Calendar Spread Strategy, Step-By-Step

Editor’s Note: How would you like to earn money when a stock price stays relatively flat over a short period of time? If so, then you should take a look at the calendar spread strategy.

When you invest in a calendar spread, you buy and sell the same type of option (either a call or a put) for the same underlying stock at identical strike prices but with different expiration dates. Usually, you’ll sell a short-term option while purchasing a long-term option.

The idea behind the strategy is to let time decay (or theta) work in your favor. If the price of the stock doesn’t move much, you’ll make money at the expiration date of the near-term option.

Here, I’ll go over the calendar spread in detail and explain how you can profit from it.

This post originally appeared at Investing Daily.

Category: Options Trading Strategy