Options 201: calendars vs. verticals

I am liking spreads more and more. Spreads typically involve two options. A vertical is the same type of option, same month, buying one strike and selling a different strike. A calendar involves the same type of option, different month, same strike, buying one month, selling a different month.

Lets look a bit closer at verticals, vs. calendars, vs. buying straight stock, vs. buying straight calls.

The purest play is just buying the underlying stock or ETF. Delta is 1, theta is not an issue. Downside is to zero.

Buying calls at the money, the delta is .5, theta is negative, especially for front month calls. Profit potential is high. Downside is the price of the option or 100%, but the option cost a small fraction of the underlying. If the stock stagnates, you lose money every day due to time decay.

The vertical has slower time decay than just buying the lower strike call. The trade off is less upside, max profit is the width of the vertical or the difference between the two strikes. The cost can be much lower than just buying straight calls.

The calendar has little to no time decay. Depending on the options chosen, theta may start out positive. The max profit price target is right at the strike, vs. way past the upper strike for the vertical, or buying one call option. The downside is that the max profit is lower than a same cost vertical, and if the underlying jumps quickly, the calendar becomes a loser.

So most bullish is just buying the underlying stock, but this isn't capital efficent as there isn't any leverage. Buying calls limits downside, and has rapid time decay. Buying a vertical call spread is cheaper than buying calls, and slows the decay. Buying a calendar means no time decay (though it varies based on options selected), and pushes the max profit zone to a closer price target, has less max profit than the vertical and also turns into a loser if the price jumps way past the strike quickly.

For example, I recently bought:
GLD calendar May/Jun 147 calls
Selling GLD May 147 calls
buying GLD Jun 147 calls

Another choice might have been
GLD vertical Jun 147/152 calls
buying Jun 147 calls
selling Jun 152 calls

Other bullish choices might be just to buy straight calls, or straight stock, or my other favorite, selling puts. For each choice there is a trade off, in terms of time decay, and cost vs. max profit and profit zone. The good news if that a person understands verticals and calendars, there is nothing more to learn. The more complex strategies are layers or combos of those.

/edited: correction made, calendars are actually positive theta benefitting from time decay, also added a link below to some free options videos, though registration is required. Option Industry Council webcasts on option basics and strategies
link