Calendar Spread
The calendar spread is an options strategy involving the purchase of a longer-term option (call or put) and the sale of an equal number of shorter-term options of the same type and strike price. Key features include:
- Uses different expiration dates to take advantage of time decay.
- Profitable if the underlying asset remains stable near the strike price.
- Limited risk due to the offsetting positions.
This strategy aims to capitalize on the faster time decay of the short-term option compared to the longer-term option, particularly if the stock price trades near the strike price.