Calendar Spread
Sell a near-term option and buy a longer-term option at the same strike price. Profits from the faster time decay of the short-dated option. Also called a horizontal spread or time spread.
Payoff Diagram
How to Set Up This Trade
Sell one option at a near-term expiration and buy one option at the same strike with a later expiration. Typically done with calls or puts (not mixed).
Trade Setup — 2 Legs
When to Use This Strategy
You expect the stock to stay near the strike price through the near-term expiration. Best when implied volatility is low (the long-dated option benefits from any IV increase).
Tips from the Pros
- 1
Calendar spreads benefit from an increase in implied volatility after entry.
- 2
Close or adjust when the short option expires — you still hold the long option.
- 3
Avoid holding through earnings or major events that could cause a large price swing away from the strike.
Quick Reference
Max Profit
Achieved when the stock is at the strike price at the near-term expiration. Exact profit depends on remaining value of the long option.
Max Loss
Limited to the net debit paid (difference in premiums). Occurs if the stock moves far from the strike.
Breakeven
Approximately at the strike price plus/minus the net debit paid (exact breakeven depends on remaining extrinsic value).
Best IV Environment
Low IV
Time Decay (Theta)
Helps (positive theta)
Risk Level
Medium RiskLearn More
Our courses cover this strategy with real trade examples and live market analysis.
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