by Ted Nino
The <a href='http://www.calendarspread.org'>Calendar Spread</a> is an option income strategy used by professional traders to generate steady monthly income. It can also be used by retail traders who have educated themselves on how to properly use this strategy to not only generate cashflow - but to also benefit their overall portfolio.
The calendar spread is a theta trade - an option trade that benefits and generates profit - from the fact that options are a decaying asset. As time goes by, options decay - and the value that was initially in the option that was sold evaporates - leaving cash in the calendar spread traders pocket.
Calendar spreads can be constructed from both call options and put options. To build a calendar spread position, one sells a closer month option at a particular strike - and then purchases a further out month option at the exact same strike. This spread makes money due to the fact that the value in the closest month option deteriorates at a quicker rate then the farther out month option. This difference in the value decay of the two different month options is what helps to create the profits in these trades.
Here is a hypothetical example of a calendar spread trade: Sell 5 Nov 60 call. Buy 5 Dec 60 call.
While in this hypothetical example, the calendar position was made up of strikes on months that were right next to each other (April and May) - they don't have to be built this way. You can use any combination of different months.
As a sample, rather than use May 35 puts - one could instead use June 35 puts - or July.
Typically calendar spread traders will utilize this strategy when they believe the underlying vehicle they are trading will stay in a range - or will wind up on expiration day close to or right at strike price which was sold.
Since some option traders feel that the <a href='http://www.youtube.com/watch?v=cXdb8SVffYE'>calendar spread</a> is one of the most easiest option trades to manage, they like trading them better than some other option trades, like the iron condor, credit spread, and butterfly. Regardless, it really comes down to personal preference and in the end, all option traders would agree that this strategy is a wonderful technique to have in their 'trade toolbox'.
Looking to be taught more about how to trade the <a href='http://www.youtube.com/watch?v=cXdb8SVffYE'>Calendar Spread</a>, then visit www.ironcondoroptiontradingstrategy.com to observe the most outstanding free tools and training on the <a href='http://www.calendarspread.org'>Calendar Spread</a> .
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New Unique Article!
Title: Calendar Spread - The Option Traders Favorite
Author: Ted Nino
Email: theeinfoco@gmail.com
Keywords: calendar spread,options trading,stock trading,stock,trading,forex trading,forex,currency trading,stock market,investing,investment,finance,personal finance,wealth building,business
Word Count: 396
Category: forex
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