What is a calendar call spread?

The calendar call spread is a neutral options trading strategy, which means you can use it to generate a profit when the price of a security doesn't move, or only moves a little. It involves two transactions: buying calls and writing calls with the same underlying security and establishing it incurs an upfront cost.

What are the different types of long calendar spreads?

There are two types of long calendar spreads: call and put. There are inherent advantages to trading a put calendar over a call calendar, but both are readily acceptable trades. Whether a trader uses calls or puts depends on the sentiment of the underlying investment vehicle. If a trader is bullish, they would buy a calendar call spread.

Should you buy a calendar spread?

If a trader is bullish, they would buy a calendar call spread. If a trader is bearish, they would buy a calendar put spread. A long calendar spread is a good strategy to use when you expect the price to be near the strike price at the expiry of the front-month option.

What is a reverse calendar spread?

A reverse calendar spread takes the opposite position and involves buying a short-term option and selling a longer-term option on the same underlying security. The purpose of the trade is to profit from the passage of time and/or an increase in implied volatility in a directionally neutral strategy.