Implementing Calendar Spreads for
Praveen Dubey (SEBI Registered RA)
SP RESEARCHVIA PVT. LTD. (INH000015808)
Constructing Time-Based Option Spreads
Earnings season brings sharp shifts in implied volatility (IV). Calendar spreads, which involve selling a near-term option and buying a longer-term option with the same strike price, allow traders to benefit from IV changes and time decay differences. Analysts at SP RESEARCHVIA PVT. LTD. outline the mechanics of these setups.
How do calendar spreads capture earnings volatility shifts?
They take advantage of the fact that near-term options decay faster and experience a sharper IV crush after earnings announcements than longer-term options, allowing traders to profit from the net spread difference.
Execution Rules and Risk Management
It is best to set up calendar spreads using slightly out-of-the-money or at-the-money contracts. Establishing clear risk limits is essential to protect capital from large, unexpected moves in the underlying stock.
Written by Praveen Dubey
Chief Research Analyst | SEBI Reg: INH000015808
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