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+A Directional Approach
+Calendar spreads are often purchased when the outlook for the underlying is
+neutral. Sell the short-term ATM option; buy the long-term ATM option;
+collect theta. But with negative gamma, these trades are never really
+neutral. The delta is constantly changing, becoming more positive or
+negative. It’s like a rubber band: at times being stretched in either direction
+but always demanding a pull back to the strike. When the strike price being
+traded is not ATM, calendar spreads can be strategically traded as
+directional plays.
+Buying a calendar, whether using calls or puts, where the strike price is
+above the current stock price is a bullish strategy. With calls, the positive
+delta of the long-term out-of-the-money (OTM) call will be greater than the
+negative delta of the short-term OTM call. For puts, the positive delta of the
+short-term in-the-money (ITM) put will be greater than the negative delta of
+the long-term ITM put.
+Just the opposite applies if the strike price is below the current stock
+price. The negative delta of the short-term ITM call is greater than the
+positive delta of the long-term ITM call. The negative delta of the long-term
+OTM put is greater than the positive delta of the short-term OTM put.
+When the position starts out with either a positive or negative delta,
+movement in the direction of the delta is necessary for the trade to be
+profitable. Negative gamma is also an important strategic consideration.
+Stock-price movement is needed, but not too much.
+Buying calendar spreads is like playing outfield in a baseball game. To
+catch a fly ball, an outfielder must focus on both distance and timing. He
+must gauge how far the ball will be hit and how long it will take to get
+there. With calendars, the distance is the strike price—that’s where the stock
+needs to be—and the time is the expiration day of the short month’s option:
+that’s when it needs to be at the target price.
+For example, with Wal-Mart (WMT) at $48.50, a trader, Pete, is looking
+for a rise to about $50 over the next five or six weeks. Pete buys the
+August–September call calendar. In this example, August has 39 days until
+expiration and September has 74 days.