About Calendar spread

F&O
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This is what I know about calendar spreads: we aim to profit from the faster time decay of the near-term option while holding a slower-decaying long option in the farther expiry. The gamma of the near-expiry option can cause issues because even a moderate move in the underlying can swing the short option’s premium a lot, and sometimes the long option doesn’t fully offset it which may lead to loss. Also, vega is higher for the longer-dated option, so if IV drops, we could lose, and if it rises, we could gain.

Plz add anything important, cautionary, or any interesting points or advise about calendar spreads that I might have missed above. @pavinjoseph @BB789 @SpacemanSpiff @niftymonk

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To reduce the effect of gamma, consider closing out the entire trade when the shorts have 14-21 DTE left. :date:

I think you’ve got the theory down! :100:

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Assume we took the trade when 30 days were left. Closing it when 21 days remain results in roughly 16% time value decay, and closing at 14 days gives about ~ 31% decay .a pretty good return :smiley: and almost safe from gamma.

Thank You @pavinjoseph for to tastyLive.com ,there’s a lot more there.

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