DEFINITION of 'Put Calendar'

An option strategy:
-Buy one put option contract with 90 days or more until expiration
-Sell one put option contract (at the same strike price) with 45 days or less until expiration
-In 45 days, sell another 45-day put option contract at the same strike price
-Hold the long position until expiration if it appears that market will be profitable. Otherwise, sell it.

BREAKING DOWN 'Put Calendar'

Profits can be realized since the price decay of the 45-day contract declines at a faster rate than the long option. The difference in premium decays allows investors to make money on the spread. The inherent risk in this strategy arises if prices rise in the short term and then increase thereafter.

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RELATED FAQS
  1. What happens when a security reaches its strike price?

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  2. How can derivatives be used to earn income?

    Learn how option selling strategies can be used to collect premium amounts as income, and understand how selling covered ... Read Answer >>
  3. How do I set a strike price in a put?

    Learn about put options, considerations to make before you select strike prices and how to select strike prices for your ... Read Answer >>
  4. Does the seller (the writer) of an option determine the details of the option contract?

    The quick answer is yes and no. It all depends on where the option is traded. An option contract is an agreement between ... Read Answer >>
  5. When is a put option considered to be "in the money"?

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