Calendar Spread
Selling a nearer-dated option and buying a farther-dated option at the same strike to create time- and volatility-dependent exposure.
What is a Calendar Spread?
Selling a nearer-dated option and buying a farther-dated option at the same strike to create time- and volatility-dependent exposure.
Construction
Sell a near-term call or put and buy a longer-term option of the same type and strike.
When it may be studied
To study differences in time decay and volatility across expirations, often around an anticipated price area.
Expiration profile
Maximum risk: Net debit, generally
Maximum reward: Variable and not fixed at entry
Break-even: Variable
Worked example
Sell a 30-day 100 call and buy a 60-day 100 call for a net debit. The value at first expiration depends on price and remaining implied volatility in the long option.
Key risks and limitations
There is no single fixed maximum-profit formula at entry. Volatility term structure, assignment, and post-expiration exposure matter greatly.
Entry and exit checklist
- Confirm contract multiplier, expiration, exercise style, settlement, and liquidity.
- Calculate the maximum loss under the intended structure.
- Review earnings, dividends, corporate actions, and other event risks.
- Define an exit, adjustment, or expiration plan before entry.
- Understand what happens if one leg is assigned or exercised early.