BUY VEDL 200 PUT @ 2.80 TGT 4.90/6.70 SL 1.20
BUY REL INFRA 440 CALL @ 8.40 TGT 12.90/16.40 SL 5.2
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The calendar spread
refers to a family of spreads involving options of the same underlying stock, same strike prices, but different expiration months. They can be created
with either all calls or
all puts. Also known
as time spread or horizontal spread.
Call Calendar Spread
Using calls, the
calendar spread strategy can be setup by buying long term calls and simultaneously writing an equal number of
near-month at-the-money or
slightly out-of-the-money calls
of the same underlying security with
the same strike price.
The idea behind the
calendar spread is to sell time, which is why calendar spreads are also known
as time spreads. The options trader hopes that price of the underlying remains
unchanged at expiration of the near month options so that they expire
worthless. As the time decay of near month options is at a faster rate than
longer term options, his long term options still retain much of their value.
The options trader can then either own the longer term calls for less or write
some more calls and repeat the process.
