Calendar Call Spread

Psychology:

The calendar call spread involves shorting a front month call option and buying a long term (LEAP) option. For example, the option contract that you short has an expiration date that is closer than the option contract you are purchasing. The calendar call spread is most suitable when the investor is bearish toward volatility and neutral-to-bullish toward the underlying asset’s share price. You can have a variation of the calendar call spread by purchasing a deeper in-the-money strike and selling a further out-of-the-money strike. If you are called away, you get the strike difference to offset any time value lost.

Risk / Reward:

Maximum Loss: Limited to the premium paid for your call minus the premium recieved for the short call.

Maximum Gain: Limited to the premium recieved for selling the call. Ideally you want to write calls for more than one month.