← AdvancedLesson 20 · 5:17
Calendar spread
Summary
You can build a calendar spread by selling a near call and buying a later one at the same strike, and read its tent on the near expiry. You can explain why it likes time and a rise in far-dated volatility, and why a curve flip hurts it.
Key terms
- calendar spread
- Selling a near-dated option and buying a later one at the same strike, a bet on time.
- debit spread
- A spread you pay to open.
- tent
- The curved, peaked shape of a calendar or short straddle on its key date.
Check yourself
Answer each question to see why the right answer is right.
1. You sell the $100 call with 30 days left for $345 and buy the $100 call with 60 days left for $489. What have you done?
2. On day 30, with XYZ at $100, what is the calendar worth?
3. Why does the calendar's shape on day 30 have curved sides instead of straight lines?
4. Clock frozen, XYZ at $100. Raising only the far month from 30% to 35% puts you up $81. Raising both months by 5 points puts you up $23. What does the calendar like?
5. In an example flip, 30-day volatility jumps to 45% and 60-day only to 36%. You are down $75. Raw vega said about plus $5 a point. What did weighted vega say?
Finished the video and the quiz? .