Calendar Spreads
Chapters in this video
- 0:00 The calendar spread naming trap
- 1:37 Horizontal spread definition: same strike, two expirations
- 2:12 Building for net debit and defined risk
- 2:51 Theta decay: fast-melting ice cube versus slow
- 3:32 Direction-neutral, not bullish or bearish
- 4:18 Best case: futures pins the strike
- 4:59 Losing case: large move away from strike
- 5:35 Leg reversal: selling near, buying far
- 6:00 Option calendar versus futures calendar: head-to-head
- 7:22 The exam trap checklist: read the legs first
What this video covers
- Why an option calendar spread is a horizontal (time) spread: same option type, same strike, two different expirations
- How to build the spread: sell the near-term option, buy the longer-dated option, and why this creates a net debit with defined maximum risk
- The engine of profit: near-term theta decay accelerates faster than deferred-leg decay, widening the value gap
- Why the position is direction-neutral at entry, and why the best case is the futures parking near the strike at near-term expiration
- How a large move away from the strike in either direction erodes the decay edge and floors loss at the initial debit
- Why reversing the legs (buy near, sell far) completely inverts the trade and destroys the theta-collection engine
- The critical exam distinction between the option calendar spread (trades time decay, both sides capped, has a strike) and the futures calendar spread (trades carry, only one side capped, no strike)
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