Calendar Spread

It's called horizontal because when you look at an options chain grid, different expirations are arranged horizontally (or in rows), while different strikes are vertical (columns). A calendar spread moves 'horizontally' across expirations at the same strike, unlike vertical spreads which move across strikes in the same expiration.

No, and in fact it's often better not to. Many traders close or roll calendars 5-7 days before front-month expiration. This avoids accelerated gamma risk, potential assignment issues, and captures most of the profit while it's still intact.

If the underlying moves significantly from the strike, the calendar loses money. Both options become similarly valued (either both deep ITM or both worthless), erasing the time value differential that creates profit. Maximum loss is the net debit paid.

For ATM calendars on indices like FTSE 100, either works similarly. Choose based on liquidity and bid/ask spreads. For stocks with dividends, put calendars avoid dividend assignment risk. Slight directional bias can also influence the choice.

Calendars are affected by IV changes. If IV drops after you enter (you have positive vega), the position loses money even if the underlying stays near the strike. This is why low IV entry is preferred - it gives you vega upside rather than downside.

Calendar breakevens are approximate and depend on back-month IV at front expiration. They're typically calculated using options pricing models. A rough estimate: breakevens are usually within 1-1.5 standard deviations of the strike. Your broker platform should show the projected P&L curve.

Rolling means closing the front-month short option and opening a new short in the next expiration. Do this when: (1) approaching front expiration but thesis is still valid, (2) front month has captured most theta but you want continued exposure, (3) avoiding expiration week risks.

Term structure affects pricing and profitability. Contango (back months higher IV) makes calendars slightly expensive but normal. Backwardation (front higher IV) can make calendars costly to enter but may profit if structure normalizes. Flat structure is neutral.

Yes. Options include: (1) Roll the strike to where the underlying has moved; (2) Add another calendar at a different strike (double calendar); (3) Close for a loss and move on. The choice depends on whether your thesis (range-bound) is still valid.

Theta: Front month decays faster (high theta) than back month (low theta). Since you're short front, you benefit. Net = positive. Gamma: Front month has high gamma (short = negative), back has low gamma (long = positive). Net = negative. This is why you want no movement (gamma hurts) but time passage (theta helps).

Pre-earnings: Calendar with front expiring just after earnings captures IV crush in front month. Risk is gap moves. Post-earnings: Enter after IV crush when IV is low, benefit from potential IV rise. Many traders avoid holding through earnings due to gap risk.

Diagonals add directional flexibility. Bullish diagonal (sell front ATM, buy back OTM call) profits from rally over time. Can be cheaper than ATM calendar. Also enables 'poor man's covered call' strategy. Trade-off is more complexity in management.

Track total vega in your portfolio. Set a vega budget based on account size and risk tolerance. Diversify underlyings to reduce correlation. Consider hedging large vega exposure with positions that are short vega (like iron condors) during high IV periods.

Ratio calendars (e.g., sell 2 front, buy 1 back) increase theta but also increase risk if underlying moves significantly. Use when very confident in pinning to strike. The extra short front adds theta income but creates potential loss if underlying moves beyond breakevens.

Calendars: Positive vega (benefit from IV rise), positive theta, negative gamma, defined risk (debit). Iron Condors: Negative vega (hurt by IV rise), positive theta, negative gamma, defined risk (spread width - credit). Calendars better in low IV; iron condors better in high IV.