The price of a time spread will fluctuate with movements in
stocks options trading price. A time spread will be at its widest
when the stocks options trading price and the strike price of
the spread are identical (i.e. at-the-money).
As the stocks options trading price moves away from the strike
in either direction, the value of the time spread will decrease.
As the stocks options trading
price moves in either direction
away from the spreads strike, the closer month will experience
a quicker price change due to the front months higher gamma.
Gamma shows the rate of change of an options delta in relation
to movements in the stocks options trading price. It is the
delta of the delta! Gamma is highest in at-the-money options
and in the front month. It decreases as you move away from the
at-the-money strike and as you move out over time.
In the same way that a time spread loses value as the stocks
options trading price moves away from the strike price, the
opposite is true also. As the stocks options trading price moves
closer to the strike price, the value of the time spread increases.
For example, lets examine the June / July 65 call time spread.
With the stocks options trading priced at 65 (directly at the
strike) the spread is at its widest point (highest value). Now,
as the stock climbs away from 65 and pushes toward 70, the June
/ July 65 spread loses value.