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training_data/curated/text/304cfeab3e68f4ffcffa824e6f7cf172580541ff700baf4e0de2dbd359f4a35e.txt

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+Buying the Calendar
+The calendar spread and all its variations are commonly associated with
+income-generating spreads. Using calendar spreads as income generators is
+popular among retail and professional traders alike. The process involves
+buying a longer-term at-the-money option and selling a shorter-term at-the-
+money (ATM) option. The options must be either both calls or both puts.
+Because this transaction results in a net debit—the longer-term option being
+purchased has a higher premium than the shorter-term option being sold—
+this is referred to as buying the calendar.
+The main intent of buying a calendar spread for income is to profit from
+the positive net theta of the position. Because the shorter-term ATM option
+decays at a faster rate than the longer-term ATM option, the net theta is
+positive. As for most income spreads, the ideal outcome occurs when the
+underlying is at the short strike (in this case, shared strike) when the
+shorter-term option expires. At this strike price, the long option has its
+highest value, while the short option expires without the trader’s getting
+assigned. As long as the underlying remains close to the strike price, the
+value of the spread rises as time passes, because the short option decreases
+in value faster than the long option.
+For example, a trader, Richard, watches Bed Bath & Beyond Inc. (BBBY)
+on a regular basis. Richard believes that Bed Bath & Beyond will trade in a
+range around $57.50 a share (where it is trading now) over the next month.
+Richard buys the January–February 57.50 call calendar for 0.80. Assuming
+January has 25 days until expiration and February has 53 days, Richard will
+execute the following trade:
+Richard’s best-case scenario occurs when the January calls expire at
+expiration and the February calls retain much of their value.
+If Richard created an at-expiration P&(L) diagram for his position, he’d
+have trouble because of the staggered expiration months. A general
+representation would look something like Exhibit 11.1 .