Learn calendar and diagonal spreads — Hinglish notes

5.4.10 · Stock-Market › Options Strategies

YEH HAI KYA?

DO naam / ek family kyun? Options ek grid mein hote hain: rows = strikes, columns = expiries.

Same strike, different expiry → horizontally move karo = calendar.
Different strike aur different expiry → diagonally move karo = diagonal.

PAISA KAISE BANTA HAI? (First principles se derivation)

Kisi bhi option ki price hai $premium = intrinsic + time value$ . Time value expiry ke paas aate-aate khatam hoti jaati hai — us speed ko theta $Θ$ kehte hain. Key fact yeh hai:

Engine: Tum short fast decay ho aur long slow decay ho. Spread ka net theta: $Θ_{net} = tum collect karte ho - Θ_{short} + tum pay karte ho Θ_{long} > 0$ kyunki $∣ Θ_{short} ∣ > ∣ Θ_{long} ∣$ . Positive net theta = time tumhari side pe hai.

Best kahan kaam karta hai: jab stock short expiry par strike ke paas rahe. Tab short option (near) worthless expire hota hai — tum uski premium rakh lete ho — jabki tumhara long option abhi bhi value hold karta hai.

Figure — Learn calendar and diagonal spreads

PAYOFF KAISE BANTA AUR PADHTE HAIN

Short expiry date par P&L woh simple hockey-stick shape nahi hoti, kyunki long option abhi bhi zinda hai aur use exercise nahi balki value (marked-to-market) karna hota hai.

$P&L at short expiry = still-alive long option V_{long, remaining} (S) - short call payoff max (S - K, 0) - cost paid net debit$

Deep ITM ya deep OTM → dono options ~saath chalte hain, long ki extra time value shrink karti hai → loss debit tak capped.
$K$ ke paas → short worthless mar jaata hai, long fat time value rakhta hai → max profit.

Isse woh signature tent / mountain shape banti hai jo $K$ par peak karti hai.

Common Mistakes

Recall Feynman: 12-saal ke bache ko samjhao

Socho do melting ice-cream cones hain. Tum ek chhoti cone sell karte ho (bahut tezi se melti hai) aur ek badi cone buy karte ho (dheere melti hai). Tumne promise kiya tha ki chhoti cone waapas doge, lekin woh pehle hi melt ho jaati hai — toh tum paisa rakh lete ho. Meanwhile tumhari badi cone abhi bhi mostly wahin hai. Agar weather (stock price) sahi aur calm rahe jahan tumne apna stand lagaya, tum sabse zyada paisa banate ho. Agar toofan aaye (bada price move), tumhari plan sirf utna hi khooti hai jo tumne set up karne mein pay kiya tha.

Active Recall

Calendar spread aur diagonal spread mein kya difference hai?

Dono near-term sell aur far-term same type buy karte hain; calendar same strike use karta hai, diagonal different strikes use karta hai.

Calendar spread time ke saath paisa kyun banata hai?

Yeh net positive theta hai — short (near) option zyada tezi se decay karta hai long (far) option ki tulna mein, kyunki

∣Θ∣ \propto 1/ T

Calendar spread debit trade hai ya credit trade, aur max loss kya hai?

Debit trade; max loss = net debit paid.

Calendar spread maximum profit kahan reach karta hai?

Jab stock short expiry par strike par baithe (short worthless expire hoti hai, long maximum time value rakhta hai).

ATM option ke liye theta time to expiry ke saath kaise scale karta hai?

∣Θ∣ = \frac{c}{2 T}

— bada hota hai jab

T \to 0

Calendar net long vega hai ya short vega, aur uska kya matlab hai?

Net long vega — implied volatility ka badhna help karta hai; low IV par enter karo.

Short expiry par dono legs settle kyun nahi kar sakte?

Legs ki different expiries hain; long leg abhi bhi zinda hai aur use market par value/sell karna hoga, exercise nahi karna.

Calls se diagonal bullish kaise banate hain?

Long-dated lower strike buy karo, short-dated higher strike sell karo — upside + theta capture karta hai.

Connections

Options Strategies
Theta and Time Decay
Vega and Implied Volatility
Vertical Spreads (diagonal = calendar + vertical)
Black-Scholes Model ( $T$ time-value scaling ka source)
Iron Condor (yeh bhi neutral hai, lekin time nahi width use karta)