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Calendar spread

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Calendar spread
A strategy that involves buying and selling options or futures with the same (strike) price but different maturities. Such a strategy is used in futures when one Contract Month is theoretically cheap and another is expensive. With options, the strategy is often used to play the shape of or expected changes in, the Volatility term structure. For example, if one-month Volatility is High and one-year Volatility Low, arbitrageurs might buy one-year straddles and sell Short-term straddles, thereby selling Short-term Volatility and buying Long-term Volatility. If, all else being equal, Short-term Volatility declines relative to Long-term Volatility, the strategy makes money.
Posted by  Privatebanking.com
 
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