calendar spread more effective towards expiration?

Discussion in 'Options' started by newguy05, Mar 13, 2008.

  1. Are calendar spreads more effectively used when the front month contract is closer to expiration? so to give you higher theta decay and less exposure to the market (price movement)?

    For example, if i write a calendar spread:


    Under what condition is it better to execute this say on Mar 1st instead of wait until a week before expiration to place the trade.

    Also are there strategies where you do the calendar spread 1 day before front month expiration? then close it immediately the next day?
  2. Generally speaking, 1 month left on the short option will be fine.

    Don't fall into the big mistake many spreaders make: closing one leg and leaving the other open.
  3. AJJ



    Why should is be more effective?

    Saying that would imply that the counter party is doing a less favourable transaction and thus has a bigger change of losing.

    If this were the case, why someone trade this strategy against you?

    Being long the short month vs. short the long month could be very lucrative with stock movements.


  4. Aren't speculators usually doing the opposite of that? They're "short" the front month AND "long" the deferred month because they want the "short" to expire worthless and offset the "long" with a net gain.
  5. AJJ


    If one side of the transaction is the speculator!.
    How is the other side named? The risk averse side!
    In my opinion, both sides have an equal P/L expectation.