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It is important to remember that the time spread will leave you with several potential positions that can be altered by other options or stock in numerous ways. There are a number of decisions you must make to clarify your understanding and goals. First, it is important to understand what position you are going to…click to read more.

Rolling the Position Time spreads are unlike all the other strategies we have discussed before when we talk about rolling or continuing the position. In other strategies, the option component is limited to a single month. At expiration, the position disappears. It either transforms into stock or expires worthless leaving you with no option position.…click to read more.

The seller of a time spread buys the nearer month option and sells the outer-month option in a one to one ratio. In order to profit from the sale of the time spread, the seller is looking basically for two things. First is a decrease in implied volatility. As volatility decreases, the out-month option (which…click to read more.

Like most trades, time spreads have a maximum loss for the buyer. As a buyer, you can only lose what you have spent. If you paid $1.00 for the spread then your maximum potential loss is that $1.00. If you bought the spread for $2.00, then $2.00 is the maximum potential loss. The buyer of…click to read more.

To be able to calculate the volatility of the spread, we must equalize the volatilities of the individual options. First, let’s move the June calls by moving June’s implied volatility down from 40 to 36, a decrease of four volatility ticks. Four volatility ticks multiplied by a vega of .05 per tick gives us a…click to read more.

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