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AdvancedStock Alerts + Tools0:46Derivatives

Selling Time to Somebody in a Hurry

A calendar spread sells a near option and buys a further one, which makes it a position on time decay rather than on direction.

0:46 · 6 scenes

This lesson is part of a Stock Alerts + Tools plan.

What the lesson covers

  1. 0:00This one profits from time passing, not from the stock going anywhere.
  2. 0:05The construction. Sell the near-dated option, buy the far-dated one, both at the same strike.
  3. 0:14Why the decay rates differ. Time value falls off a cliff near expiry and barely moves months out.
  4. 0:24Where it goes wrong. A large move in either direction hurts it. This wants the stock to sit still.
  5. 0:33The volatility exposure. You are long volatility on the far leg, so a collapse in implied volatility hurts.
  6. 0:41It is a bet on stillness, not on direction.
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Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Educational content only. MadStockAlerts provides market commentary, research, and educational content. It is not personalized investment advice, and nothing here is a recommendation to buy or sell any security. Trading and investing involve substantial risk, including loss of capital. See the Risk Disclosure and Customer Agreement.
Selling Time to Somebody in a Hurry — MAD Academy Training Video · MadStockAlerts