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Option Strategies: Calendar Spreads | Options Trading Concepts

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Calendar spreads are neutral strategies that benefit from implied volatility expansion. They are constructed by purchasing a longer dated option, and selling a shorter term option on the same strike. Tune in to learn all about this strategy! New to options trading? Mike breaks down trading strategies and concepts in a visual way for beginner to intermediate investors. Follow: @tastytradermike ======== tastytrade.com ======== tastytrade is a real financial network, producing 8 hours of live programming every weekday, Monday - Friday. Follow along as our experts navigate the markets, provide actionable trading insights, and teach you how to trade. With over 50 original segments, and over 20 personalities, we’ll help you take your trading to the next level, whether you are new to trading or a seasoned veteran. http://ow.ly/EbzUU Subscribe to our YouTube channel: https://www.youtube.com/user/tastytrade1?sub_confirmation=1 Follow tastytrade: Twitter: https://twitter.com/tastytrade Facebook: https://www.facebook.com/tastytrade LinkedIn: http://www.linkedin.com/company/tastytrade Instagram: http://instagram.com/tastytrade
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Text Comments (6)
Jacob David (11 days ago)
Mike, you are going too fast, it's hard for me to keep up. Surely it's an advanced class.
Sheshagiri Pai (3 months ago)
Why debit? Is there no benefit to a Calendar credit spread i.e Buy the near month and Sell the later month same strike?
tastytrade (3 months ago)
That would just be a reverse calendar spread, where you want IV to contract, since the short further dated strike will have a higher vega sensitivity than the long near term option on the same strike.
Vignesh Dhakshinamoorthy (6 months ago)
Can you do cal spreads to benefit from Volatility crush during ER? I see the weeks closest to ER has pretty high IV compared to ones that are farther away. This should mean the short leg loses substantially more value than the long leg day after ER.
Vignesh Dhakshinamoorthy (6 months ago)
tastytrade great answer, thanks a lot for taking the time to respond. I did note down IVs and pricing of Adobe this week for their ER, and I noticed that despite the huge IV drop, the Vega still won over. Not something you want to use during an ER. :)
tastytrade (6 months ago)
Calendar spreads are actually a positive vega trade since your long option is more sensitive to changes in IV than the short, even if the short does drop in premium by a larger percentage, it is still a net positive vega trade so it's not something we do for earnings. At the same time, a calendar spread requires the stock price to stay really close to the short strikes, which tends to be the opposite of what happens when earnings are released and the stock moves up or down. It's rare for a stock to have a complete non-movement after an earnings announcement, but certainly can happen.

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