A long put calendar involves buying a longer-dated put against selling a shorter-dated put. For example, from Table 28.1 (repeated from Table 25.1) of Sep and Dec FTSE 100 option prices, buying the Sep/Dec 5325 put calendar consists of two legs (highlighted), buying the Dec 5325 put at 185 ticks (equivalent to £1850) per put and simultaneously selling the Sep 5325 put at 53 ticks (equivalent to £530) per put. The price of the calendar is therefore 132 ticks (equivalent to £1320) per spread, the difference between the 185 paid for the Dec put and the 53 received for the Sep put. What is the thinking behind such a trade?
Remember that option spreads have evolved for two main reasons; to reduce the cost of owning options and/or to reduce the risk of shorting options. In the case of a long put calendar, we are looking primarily to reduce the cost of owning options. We want to buy some out-of-the-money Dec puts but are not willing to buy them outright, either because we do not perceive them to be cheap enough and/or because we do not expect the underlying FTSE Index to fall sufficiently. We reduce the cost of the trade by selling some similarly out-of-the-money Sep puts at the same time. We part-finance the purchase of the Dec puts by selling some Sep puts. Unsurprisingly, by reducing cost, we are simultaneously limiting our profit potential.