I am looking to solely make use of the theta decay and trying to overcome the effects of delta and Vega.
I sell ABC Feb OTM (strike price X) with 3 x 10 = Rs. 30 credit and buy ABC Mar OTM (strike price X) with 1 x 30 = Rs. 30 debit.
- Is Calendar spread Vega neutral?
Now, both the values are simply extrinsic values. How would calendar spread pair react to any change in Implied volatility?
- Is Calendar spread Delta neutral?
This is my biggest concern. I could imagine that when spot price moves, the neutrality may be disturbed, but the sell and buy at same strike price should somehow diminish the losses/profits made on underlying price movements. Will they do it?
- What are the factors that work solely to create losses? What are the factors that can work in both favorable and unfavorable ways?