We have already introduced you to calendar combinations (calendar spreads) and diagonal spreads (diagonal spreads) in the previous section. These two time difference combinations, like selling options or vertical spreads, are good strategies (income strategies) that can generate stable income. As mentioned before, any strategy may encounter challenges after constructing a combination, so how to adjust the combination is also a very important part of the construction strategy.

Take put as an example. A recent sell put, long (buy) forward put is a long calendar spread, a long recent put, sell forward put is a sell calendar spread, and the same settings are made for the diagonal spread. Through the introduction of the knowledge in the previous chapter, readers should be able to more directly understand Long Calendar Spread, which means that the price of the underlying asset will not move much during the period when the sale expires recently. That is, when the price of the underlying asset when the recent PUT expires stops at the strike price where Sell's recent PUT expires, the calendar spread portfolio has the greatest profit. However, maximum profit is difficult to measure accurately, because the implied volatility situation at the time could not be determined, so the price of a long forward put could not be determined at the time. From the perspective of Greeks, the Greeks situation with a long calendar/diagonal spread is negative gamma, positive vega, and positive theta, and positive theta is the reason why long time spread can be a relatively stable income strategy. Judging from the positive vega point of view, rising implied volatility is also beneficial for long calendar/diagonal spreads. Corresponsibly, short time spread GREEKS is characterized by positive gamma, negative vega, and negative theta. Therefore, short time spread hopes that the underlying asset price movement will deviate from the exercise price, and predictions about implied volatility will also decline.

Here, we will take long calendar spread as an example, and focus on adjusting the calendar spread combination. Compared to cross-combination transactions such as Sell Strangle, Long Calendar Spread is not considered a transaction with a high win rate at the beginning of constructing a combination, but readers can improve the winning rate of the combination through adjustments. For example, an investor believes that the trend of stock A in the next month will rise slightly and fluctuate in a narrow range. Assuming that the current price of A in May is 202.5, investors choose to sell 203 puts in June (with 30 days left to expire) at a price of 2.6, and buy 203 put in July at a price of 4.3, so using debit 1.7 to form a long calendar spread combination. However, assuming that stock A continues to rise over the next 20 days and the stock price soars to 206, then the June 203 portfolio sold by investors at this time is already rich in profit. For example, 80% profit is already there, that is, profit of 2.6*0.8 = 2.08. However, the July 203 put bought at this time will have a bigger loss. The July 203 put has already lost 3.2, and investors are worried that the price of stock A may not fall below 203 in the next month. Well, at this point, relying on the equity of 203 puts sold in June is obviously not enough to make up for the loss of 203 puts bought in July. At this point, investors can buy out the June 203 lot previously sold, and then re-sell the lot that expired in July or had a higher equity price before, that is, the equity capital was thicker, such as 205. Assuming that the investor buys 203 puts due in the previous June, achieves a profit of 2.08, and then re-sells 205 put the week before the July expiration, at a price of 2.4. This actually created a diagonal spread, and made up for the equity loss on the previous long July 203 put by selling new and thicker equity puts. In this way, if the price of A remains above 205 for the week before the July expiration, the investor's return is 2.08+2.4-4.3 = 0.18. Therefore, investors instead made the adjustment so that Calendar Spread made a profit at an unfavorable time. Some readers may have questions here. It seems that the adjustments only seem to make the combination barely lose, and it seems that overall, it's not as good as expected. Investors here need to have an idea. No strategy has the characteristic of winning or losing money. In fact, many strategies make a profit when they meet the forecast, and if the combination can maintain a no-loss or even a slight profit situation when the stock price trend is very different from the forecast, then in the long run, the positive expectations of the strategy are actually huge. If investors can stick to this strategy, they will definitely have impressive returns in the long run.

In fact, in the actual combat process, if investors have a certain judgment on the trend of the target asset, then long diagonal spread is actually a more flexible and free strategy combination. For example, according to the example of stock A given above, if investors judge A's trend in the coming month as a slight increase and narrow fluctuation, then selling 203 puts in June at a price of 2.6, and buying 201 put in July at a price of 2.8 is a more ideal combination. If the price of A is around 203 when it expires in June, then investors can achieve a relatively impressive profit, and if A rises more than the expected margin before it expires in June, investors can also go through the adjustment method described above and still make a good profit in the end.

Generally speaking, the Calendar/Diagonal spread is not a transaction with a high win rate at the initial stage of building a combination, but in return, the risk of such a combination is relatively manageable. If investors can skillfully adjust these time spread combinations, they can gradually increase the winning rate of the strategy, thereby increasing the overall positive expectations of the strategy.