Customers love calendar spreads! They understand that calendar spreads, AKA "time spreads," have broad profit ranges, defined risk, no margin, and use little capital. But what's the secret, or moreover, what are the rules for getting out and exiting calendar spreads?

I get email after email asking, "Bat, I did what thinkorswim said and bought a calendar spread when volatility was lower for the positive Theta (time decay) and the directional play. But now how do I get out of this trade? What's the secret? Are there rules for getting out of calendar spreads?"

Let's keep it simple. You should consider exiting a calendar spread when any of the following occur:

A.) It is 4-10 days before expiration.

B.) The short option of your calendar spread is trading for 1/10 of the strike price increment. For example: $5.00 wide strikes = $0.50, or $1.00 wide strikes = $0.10.

C.) Or when Nirvana shines upon you- Maximum profit occurs! The underlying stock price settles at or near the strike price of the short option at expiration. Consequently, the front-month short option expires worthless, and the back-month long option has its greatest value because it is ATM (at the money).

thinkorswim, Inc. and its employee, Tony Battista, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.