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Calendar spread

Selling a near-term option and buying a longer-dated one at the same strike, profiting from faster decay of the short leg.

Rolling a futures position forwardThe March contract is sold and the June contract bought on the roll date, before March expires.5.004.754.504.254.00Contract price1 Feb15 Feb1 Mar15 Mar1 AprCalendar dateROLL DATEsell March, buy June the same dayMarch expiresMARCH CONTRACT (front month)JUNE CONTRACT (next up)Solid = the contract you hold. Dashed = the contract you do not.
Rolling a futures position forward. Every futures contract has an expiry date, so a trader who wants to stay in the market closes the front-month contract and opens the next one. That swap is the roll, and the two contracts rarely trade at the same price.

A calendar (or time spread) exploits the fact that theta accelerates near expiration. The short front-month option decays faster than the long back-month option. It works best if the stock sits near the strike as the front month expires.

Calendars are long vega: a rise in implied-volatility helps, and a collapse hurts.

Example: stock at $50. Sell the 30-day $50 call for $1.50, buy the 60-day $50 call for $2.60. Net debit $1.10. If the stock is at $50 in 30 days, the short call expires worthless and the long call is still worth about $1.80.

Related: theta, vega, vertical-spread, expiration-date

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