CALENDAR SPREAD

CALENDAR SPREAD

SELL NEAR MONTH OPTION

BUY FAR MONTH OPTION

As it name suggests it spreads over the calendar month, hence it is known as calendar spread. The logic behind calendar spread is, near month options price will fluctuate more than far month. So, in calendar spread we take benefit out of this.

Calendar spread can be of many types. If it has made using call option it is called Calendar Call Spread, same way for put it is known as Calendar Put Spread. If the Calendar Spread is made of different month’s expiry and same strike price is called Horizontal Calendar Spread. At the same time options with different strike price is known as Vertical Calendar Spread.

Market Scenario: Neutral

Risk: Limited

Reward: Limited

EXAMPLE:

The example of Calendar spread is given below. Here we are using the same strike price so it is Horizontal Calendar Spread.

SPOT	5000
STRIKE	5100

Current Expiry is Oct. So we are Buying the option of Dec i.e. Far Month and Selling the Option of Nov i.e. Near Month.

	NOV - BUY	DEC – SELL
5100	198.13	252.48
Time to Expiry	2 Month	3 Month
Spread	54.35

Here after one month of purchase, the position of options will be like this:

	OCT	NOV
5100	124.95	198.13
Time to Expiry	1 Month	2 Month
Spread	68.18

Here our Spread has been increased from 54.35 to 68.18 considering the same spot.