Master the "Time Decay Edge." Learn how to profit from the faster erosion of short-term options vs. long-term options.
A Calendar Spread is a neutral strategy that involves buying two options with the same strike price but different expiration dates. You are essentially taking advantage of the fact that time decay (Theta) affects short-term options more severely than long-term ones.
Your goal is for the near-term option to decay in value (Theta decay) faster than the long-term option, allowing you to buy back the short option for a profit while holding the longer-term option.
This strategy works best when you expect the stock price to remain stable (sideways) or move only slightly toward your chosen strike price. It is not designed for fast, explosive moves. The risk is limited to the initial cost of opening the spread, but the profit potential is also capped by the intrinsic value at expiration.