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Calendar Delta - An Option Trading Strategy


We shall learn about the Calendar Delta option strategy on this page. Delta, as we have seen in our previous class, reflects the change in the price of your option contract premium with reference to the change in the underlying stock's price.


Now, when you enter the options market, you are not going to deal with a single contract, right? You will definitely use more than one contract with combinations of long and short contracts, call and put contracts, etc.


The spreads are formed when you combine the call options contract and put option contract, purchase them, and sell them simultaneously. The spreads are very useful when the market is static or has no volatility. You can make money even in the static market using various spreads.


As we saw, the Delta Greek measures the value of change in the option contract premium with reference to the stock price of the underlying asset, but what if there is no change or movement in the price or there is no volatility at all?


In such cases, you can use delta spread; it will help you make a small profit. While using the delta spread, you should be very careful because traders may have high gains or losses if the market moves in an unexpected direction.


Therefore, to avoid such situations, you may create a delta-neutral situation by selling and buying the option contracts simultaneously in such a proportion that it makes the delta-neutral strategy. Use the option contracts having different expiry dates.


Understanding it in simple words, creating such a position in which the positive and negative delta offset each other, making the total of overall delta trade zero.


The widely used delta spread options strategy is calendar spread. You must use the option contracts with different expiry dates to enter the delta calendar spread.


To understand with an example, let us consider traders selling the near-month call option contract and buying the long call option contracts in a proportion that their delta values offset to zero.


As this strategy is neutral, there will be no significant profit or loss by price movement in the underlying asset's price.


What is the highest risk in the strategy?

The risk is limited to the premium paid initially but may increase or decrease with the change in delta value.


When to use the delta calendar strategy in the market?

Observe the price trend properly and ensure there will not be any large movement in the underlying asset's price and that the market is static; that is the best time to enter the market.


Conclusion:

While using the delta calendar spread, traders can have a significant gain or loss if there is high volatility in the underlying asset. But if there is no movement, traders can make good money. I hope you have understood the strategy; in case you have any confusion, you may reach us at 8447445815 / 9909978783

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