Calendar Spread
A calendar spread attempts to exploit the difference in time decay between options that expire in different months. The typical calendar spread exploits the naturally inflated time decay of a near-term option relative to a longer-term option. A calendar spread, therefore, offers unique characteristics and can be a nice addition to your repertoire of option strategies. A calendar spread gets its name from the fact that all options in the strategy have the same terms, except for the expiration date. This chapter will cover long and short calendar spreads and move beyond the basics.


A calendar spread, also called a time spread, can be executed to take advantage of near-term time decay relative to longer-term time decay (long calendar spread) or to take advantage of longer-term time decay relative to near-term decay (short calendar spread). A calendar spread involves the purchase of a call (or put) option and the simultaneous sale of a call (or put) option with the same strike price but a different expiration date. You are long a calendar spread when the longer-term option (back month) is purchased and the near-term option (front month) is sold; for example, sell one XYZ February 100 call and buy one XYZ March 100 call. You are short a calendar spread when the longer-term option is sold and the near-term option is purchased; for example, buy one February 100 call and sell one March 100 call. A short calendar spread is also called a “reverse time ...

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