Long Calendar Spread
A long calendar spread sells a near-term option and buys a later-expiry option at the same strike — a time-decay arbitrage that profits when the underlying stays near the strike while the short option decays faster than the long.
- Max profit
- -200
- Max loss
- -200
- Breakeven(s)
- —
When to use
Use when you expect the underlying to stay near a specific price for the next few weeks but expect a larger move later. Also useful when near-term implied volatility is elevated relative to further-dated implied volatility (a steep term-structure).
Risk profile
Maximum loss is the net debit paid (the long expiry costs more than the short). Maximum profit occurs when the underlying is at the strike at front-month expiration and is limited by the remaining value of the back-month option. Note: this expiration-only model approximates the calendar with same-strike options at a single expiry — the real edge is the differential time decay (theta) between the two expiry dates.
FAQ
Why does a calendar spread profit from time passing?
The near-term short option loses time value faster (higher theta) than the longer-dated long option. When the stock stays near the strike, you profit from this differential decay — you are essentially long theta on the spread.
What is the risk of a calendar spread if the stock moves sharply?
A large directional move hurts a calendar because both options gain or lose intrinsic value similarly, eliminating the time-value edge. The position is effectively short gamma — it loses money on big moves in either direction.
Does implied volatility help or hurt a long calendar?
Rising implied volatility generally helps a long calendar because the back-month option (which you own) has more vega than the front-month option (which you are short). A volatility expansion after entry increases the spread value.