Strategy reference
Calendar Spread
A calendar spread (also called a horizontal spread) sells a near-term option and buys a longer-dated option of the same type and strike. Profits from the faster time-decay of the near-term short.
Structure
Sell one near-term option and buy one longer-dated option of the same type at the same strike. Both legs are calls, or both legs are puts — the only difference between them is when they expire.
Payoff at expiration
When the near-term option expires, the short leg pays out whatever its intrinsic value is at that stock price, and you are left holding the longer-dated option — its remaining value depends on where the stock is, how much time it has left, and the volatility at that moment. Your worst-case loss if you hold to the near-term expiration is bounded by what you paid for the spread; the longer-dated leg still has time value.
- Stock price
- $100
- Sell
- 1 × $100 call (30 days to expiry) @ $3.50
- Buy
- 1 × $100 call (60 days to expiry) @ $5.00
- Net cost (debit)
- $1.50
- Max loss (near-leg expiry)
- $1.50 (the initial debit)
- Max gain
- Depends on σ and the back leg's remaining value at near-leg expiry
Frequently asked questions
What is a calendar spread?
A calendar spread sells a near-term option and buys a longer-dated option of the same type at the same strike. It profits from the faster time-decay of the near-term short leg, assuming the stock stays near the strike.
What is the maximum loss on a calendar spread?
At the near-term expiration, the maximum loss is bounded by the initial debit paid, because the longer-dated leg still has time value.
Is a calendar spread bullish or bearish?
A calendar spread is essentially direction-neutral with a slight bias toward the strike. Its profit depends primarily on the volatility relationship between the two expirations.
This page is an educational reference, not investment advice. Numbers in the worked example are approximations for illustration only — real option prices depend on volatility, interest rates, dividends, and time to expiration. See the full disclaimer for details.