Calendar Spread
Profiting from the speed difference in time decay across expirations
Definition
A calendar spread (also called a time spread or horizontal spread) involves buying and selling options on the same underlying asset at the same strike price but with different expiration dates. Typically you sell the near-term option (higher time decay) and buy the longer-term option. The strategy profits when the near-term option loses time value faster than the long-term option. Calendar spreads benefit from low volatility in the near term followed by increased volatility.
Example
With SPX at 5,000, you sell a 5,000 call expiring in 30 days for $30 and buy a 5,000 call expiring in 60 days for $50. Net debit: $20. If SPX stays near 5,000 for 30 days, the short call expires worthless while the long call retains value, and the spread profits from the difference in time decay.
Related Terms
Frequently Asked Question
What is a calendar spread?
A calendar spread buys a long-dated option and sells a short-dated option at the same strike. It profits from the near-term option decaying faster than the long-term option when price stays steady.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.