What does Calendar Spread mean?
A spread is the purchase of one futures contract and sale of another, in the expectation that the price relationship between two will change and yield a net profit. Calendar spread is a type of spread where the two options for the same underlying asset expire in two different calendar months. It is a trading strategy of buying one option and selling another option of the same type but expiring in different months.
Futures Knowledge Explains Calendar Spread
The maximum possible loss in Calendar spread is known up front. This strategy has therefore limited risk. This is more suitable when there is less volatility and price movement is likely to be range-bound. It makes profit within a given range. For example, you can go long on Gold June futures and go short on Gold Sep futures. You need to enter agreements for both futures simultaneously.