Calendar Spread Option Trading Strategy

According to Investopedia.com a calendar spread is "an options or futures spread established by simultaneously entering a long and short position on the same underlying asset but with different delivery months. Sometimes referred to as an interdelivery, intramarket, time/horizontal spread."

The purpose of the calendar option trading strategy is to take advantage of differences in option volatilities. This strategy is not suitable for circumstances in which the option volatility is high.

The calendar spread options trading strategy is geared toward utilizing characteristics that are unique to options. Each option of an underlying stock is traded at a different level of implied volatility. If the difference in these implied volatilities is large then the calendar spread may be used.


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