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Strategy View
Investor thinks that the market will be weak in the short-term, but rally
in the longer-term.
Strategy Implementation
Near dated call option is sold, and a longer-dated call option with the
same strike is bought. (If the investor holds the opposite view, then
a comparable strategy can be constructed with puts).
Upside Potential
Large, if the bought option is held after the short option expires (the
position then becomes a straight-forward call purchase). If the position
is closed at expire of the near option, maximum profit will accrue if
the market is at the level of the sold strike.
Break-Even Point at Expire
Strike price plus premium.
Downside Risk
Limited to the initial debit incurred for establishing the spread.
Margin
Off-set may be available.
Comment
There is a risk of the sold options being called (i.e., being exercised).
Sometimes called a horizontal or time spread.
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