Calendar and diagonal spreads can be some of the most interesting arrows in the options trader’s quiver, but the moving parts of a strategy with multiple expirations can be difficult to get your hands around.
The long calendar involves selling nearer dated options and buying later dated options of the same strike and kind. These are some of my favorites, but they are also one of the most advanced trades, so they take some education. Now, the progression of an option trader’s development usually has something of a predictable pattern. Traders start with a particular strategy, usually buying calls looking for the leverage that options provide or selling covered calls against their long equities. After losing money, sometimes in ways they can’t fathom (they buy calls, the stock goes up, they lose money), they start their homework – if they don’t give up.