Calendar Put Spread

Psychology:

The calendar put spread involves shorting a front month put 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 put spread is most suitable when the investor is bearish toward volatility and neutral-to-bearish toward the underlying asset’s share price. You can have a variation of the calendar put spread by purchasing a deeper in-the-money strike and selling a further out-of-the-money strike. If you are assigned, you get the strike difference to offset any time value lost.

Risk / Reward:

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

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