Calendar Spreads

Traders looking at various options trading strategies for a neutral strategy may find that calendar spreads offer high potential reward with a medium level of risk.

Calendar spreads involve options with different expiration months. These are also known as horizontal spreads and differ from vertical spreads, which have different strike prices with the same expiration date.

Traders interested in a calendar spread will buy an option with a longer expiration date and sell an option with the same strike price and a shorter expiration date. The trade makes money when the earlier option loses its time premium faster than the option with the longer expiration date. The trade will have the biggest payoff if the stock remains close to the same price.

To make better trades with this strategy, keep this in mind: For calendar spreads to produce a profit, the underlying stock must be relatively stable. Any wild swings in either direction may cause the spread to lose money.

There are many options trading strategies available to BetterTrades students. Under the system developed by Freddie Rick there are strategies that can work under various market conditions. There are covered calls and bull put spreads for bullish market; iron condors and calendar spreads for a neutral market; and bear put spreads and bear call spreads for bearish markets. At BetterTrades, you can find a wealth of strategies that can fit your trading needs.

Bear Call Spreads | Bear Put Spreads | Calendar Spreads | Covered Calls | Iron Condors