The Option Trading Website
| |||||
> Home
> Advanced Strategies
> Calendar spread : A first approach
 Calendar spread : A first approach
Issued on August 21 2010 par Strategies-options.com
The calendar spread is probably one of the most interesting strategies with vanilla options.
One of the first "complex" strategies with options, the calendar spread, overflows interests in its management and that is why it is one of the most used strategies by market-makers.
I - Definition The calendar spread is a strategies that implies purchasing and selling options of the same type (calls or puts), on the same underlying, having identical strikes but different maturities. II - Vocabulary If we call C1 a 1 year call struck at 100 on a share XYZ, and a 6 months call C2 struck at 100 concerning as well the share XYZ, as we buy the 1 year call and if we sell the 6 months call, this strategy is " traditionally " a debit, that is that we have to pay some money out to build it. That is we buy the calendar spread 6 month / 1 the year. Conversely, we shall say that we sell the calendar 6 month / 1 the year if we sell the 1 year call C1 and we buy simultaneously the 6 months call C2. The same thing in the case of puts. III - On The first Profit Targets. The first thing with the calendar spread is to notice that, other things being equal, the time value of the short term option decreases faster than that of the long term one. We deduct from that - When it is bought, it is interesting for the holder that the spot stays at the level near the options strike. We so prfit from time value of the option sold with the will the price stays slightly otm. the optimum is reached if the underlying ends up at 99.9 in 6 months. So the option C2 loses any value, and the buyer of the calendar would find himself with a call C1 largely financed by the sale of the first one. If nothing changed besides, the loss of option time would be totally compensated. - It is the opposite when it is been sold, it is interesting for the seller that the spot moves away from the strike. A long 1 year / 6 months 100 calendar Implied Volatility 30%(vol=30%, rate=5%)  A short 1 year / 6 months 100 calendar (vol=30%, rate=5%)  But the calendar spreads which by construction are set on two different options which differ by their respective terms is also two bets on the levels of implicit volatilities by terms. Next :Calendar Spread Previous : Volatility Arbitrage Download the pricer here Advanced Strategies - INDEX Advanced Strategies - CHAPTER I Advanced Strategies - CHAPTER II Advanced Strategies - CHAPTER III Advanced Strategies - CHAPTER IV Advanced Strategies - CHAPTER V Strategies-options.com |
Other articles
- Basic Strategies -
Long Put Spread : A First Attempt
Long Put Spread is a fundamental strategy which combines the purchase and the sale of two puts.
- Relationships Between Option Sensitivities -
Gamma Г and Vega υ Relationship
This is another relation between option sensitivities.
- Relationships Between Option Sensitivities -
At The Money Forward Relationships 3
ATMF Implied Volatility
- Futures and Equity Options Trading Strategies -
CAC40 SOIC DEC10 Strategy Summary
Summary and results.
- Other Derivatives -
Stability Warrants : A First Attempt
Stability Warrants are listed double knock out options issued by banks
|
Strategies-Options.com - © 2009 - 2012 Tous Droits réservés
|
|
|
|
|
|
|
|
| www.strategies-options.com est un site d'éducation et de formation sur les marchés dérivés, en particulier les options, les options binaires, les warrants, les turbo warrants et les certificats.
Même si nous faisons notre maximum pour produire du contenu de qualité, nous vous remercions de nous contacter si vous remarquiez une erreur afin que nous puissions la corriger le plus rapidement possible. Les stratégies présentées ne sont en aucun cas des conseils en investissements, mais elles servent à illustrer notre propos dans un but strictement éducatif. Elles sont basées sur notre expérience de ces marchés. Vous êtes responsables de l'utilisation de ces stratégies dans l''éventualité où vous souhaiteriez les reproduire. Il reste strictement interdit de diffuser, reproduire ou publier de quelque manière que ce soit tout ou partie du contenu du site www.strategies-options.com, sous quelque forme rédactionnelle, graphique ou d'image, que ce soit, sans notre consentement. |
 |