Calendar spread
Sell a near-term option and buy a longer-dated one at the same strike to harvest theta.
The calendar spread (also called a time spread or horizontal spread) involves selling a near-term option and buying a longer-dated option at the same strike. You profit from the difference in theta decay rates between the two expirations and from any IV expansion in the longer-dated option.
Bias: Neutral (expects stock to stay near the strike) Risk profile: Defined (net debit paid) Ideal conditions: Low to moderate IV, stock expected to stay range-bound near your strike
How it's constructed
- Sell a near-term option at a specific strike (higher theta, decays faster)
- Buy a longer-dated option at the same strike (lower theta, decays slower)
- Same strike, different expirations, net debit paid
Setup example
SPY is at $510, expected to be range-bound. You set up a call calendar:
- Sell the $510 call expiring in 14 days → collect $3.50
- Buy the $510 call expiring in 45 days → pay $7.00
- Net debit: $3.50 per share ($350 per calendar)
How it profits
The short near-term call decays faster than the long call. If SPY stays near $510 through the first expiration, the short call expires worthless or nearly so, while the long call retains most of its value. You then either sell the long call or sell another near-term call against it for the next cycle.
Max profit, max loss
| Metric | Value |
|---|---|
| Max loss | Net debit paid ($350) |
| Max profit | Maximized when stock is at strike on near-term expiry date |
| Ideal outcome | Stock pinned near $510 at near-term expiry |
When to use
Best in low-to-moderate IV environments where you expect the stock to stay flat. Calendar spreads are sensitive to IV changes , a rise in IV benefits the long option more than it hurts the short (net positive vega). They're a vega-positive strategy, making them more attractive when IV is low and likely to rise.
Related terms: Diagonal spread, theta, Vega, time value, term structure
Try it on Stryke: Screen for range-bound stocks with stable IV in the Options Screener.
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