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What is a calendar spread option strategy?

The calendar spread option strategy consists of purchasing a call option long-term and selling a call option short-term derived from the same financial instrument with the same exercise price but a different expiration date. In other words, traders try to benefit from the anticipated differences between time transit and options volatility.

When should you use a long calendar 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. This strategy is ideal for a trader whose short-term sentiment is neutral. Ideally, the short-dated option will expire out of the money. Once this happens, the trader is left with a long option position.

How do I find calendar spread opportunities?

You can use some of the tools that are available on Fidelity.com to search for calendar spread opportunities. For example, if you select “IV 30 > HV 30” as the criterion, the scan will look for elevated IV levels relative to historical volatility (HV) levels.

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