![]() ![]() You could also use a calendar spread when you think a stock price will move higher or lower in the long-term but don’t think it will move much in the short-term. If the stock price moves significantly away from the strike price in either direction, you’ll lose money. In that case, you keep the money you earned from selling the option. You make money when the stock price is at or just below the strike price when the contract expires. Use a calendar spread when you think the price of the stock stay close to the strike price of the near-term option at expiration. That’s also good news if you’re in this strategy because you make a profit when the long-term option goes up in value. An increase in IV will have more of a positive impact on the long-term option than the short-term option. The long-term option, on the other hand, won’t move as much in the near future because investors realize that there’s still plenty of time for the underlying stock to change in price.Ĭalendar spreads are also affected by implied volatility (IV). That’s okay, though, because you’re short that position. If the price of stock stays steady, the value of the near-term call goes down in value. ![]() Time works in your favor with calendar spreads. In the example above, you’d open that horizontal spread if Apple shares were trading at around $190 on the open market. Usually, you’ll pick strike prices that are close to the underlying stock’s current price. If you’re unfamiliar with a horizontal spread, it’s an options strategy that involves buying and selling options at the same time with different expiration dates.įor example, if you buy the Apple $190 call option that expires in two months for $10.60 while simultaneously selling the $190 call option that expires in one month for $7.60, you’ve just opened a horizontal spread. A calendar spread is a type of horizontal spread. ![]()
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