Is a calendar spread a debit spread?

A calendar spread is a debit spread and as such the maximum that the trader can lose is the amount paid to enter the trade. The sold option is shorter-dated and therefore cheaper than the long-dated option that is being bought which results in a net debit for the trader.

What is a double calendar spread?

A double calendar spread is simultaneously purchasing two sets of a standard calendar spread that are based on the same underlying – that means four options contracts in total – for increased exposure. While a single calendar spread has only one option type, either call or put, a double calendar spread has both.

How does a calendar spread profit?

A calendar spread profits from the time decay of options. The trader buys a longer-term option and sells a shorter-term option with the same strike price. The idea is that the shorter-term option will expire worthless, while the longer-term option will retain more value due to its longer time until expiration.

What is a calendar spread options strategy?

Here is one way to capture opportunities created by volatility. The calendar spread options strategy is a market neutral strategy for seasoned options traders that expect different levels of volatility in the underlying stock at varying points in time, with limited risk in either direction.