A calendar spread buys a later-expiry option and sells a nearer-expiry option at the same strike. It profits from the near leg decaying faster while you hold the longer edge. It is a mildly directional, Theta-positive structure that benefits from stable prices near the strike. Max risk is the net debit.
Use when the model expects range-bound action and IV is stable or rising. The filter avoids calendars into high-VIX stress or a breakout (oi_buildup extreme). Because it is short near-term Gamma, stand aside near expiry of the short leg. Size by net debit.
Q: What is a calendar spread?
A: Buy later expiry, sell nearer expiry, same strike; net debit.
Q: Why does it work?
A: Near leg decays faster; you benefit from time-value difference.
Q: When to avoid?
A: High VIX or a breakout expected; short near Gamma hurts.
Q: What is the max risk?
A: The net debit paid upfront.
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By Shakti Tiwari · Options AI research pillar. NISM XII certified. Educational only, not investment advice; verify before acting.