I have heard that the calendar spread is playing time decay, while credit spread is playing probability. For me, it is quite confusing, because credit spread, or debit spread is play time decay, too. Can someone give a clarification? Thanks.
Let me add something to my question. For out-the-money credit spread or in-the-money debit spread, is that also a time decay play instead of probability play? Is the iron condor a time decay play, too? Thanks.
The gain from time decay for the option sellers is a short term interest rate. Not a whole lot of money to bargain for.
Your choice has to do with your prognosis for the underlying. If it's trading sideways, you'd be looking more at a calendar spread or iron condor. If it's uptrending you'd be looking at a put credit spread, downtrending it'd be a call credit spread. Calendar spreads, iron condors and credit spreads take advantage of theta to make money. Your choice depends on where you think the underlying is going. There's no free lunch with option plays. You have to bet on underlying direction (up, down, or sideways) and take the consequences if you're wrong.
Time decay play has to be by definition a market neutral strategy - one wants to profit from elapsing time not the market trends.