What is a calendar spread?
A calendar spread, also called a time spread or horizontal spread, uses one strike and two expirations. You sell the near-term option and buy the longer-term one, for a net debit.
The near option decays faster than the far one. That difference is the profit engine. Calls or puts both work; at the same strike the shapes are close to identical.
When traders use it
Traders open calendars when they expect quiet now and something later.
- You think the stock pins near a strike through the front expiration.
- Near-term implied volatility is high relative to the back month.
- You want long exposure to a later event without paying full price for it.
The P/L shape
The payoff is a tent centred on the strike, but only at the front expiration — the back option still has life, so the curve is not made of straight lines.
Worked example. XYZ trades at $100. You sell the 30-day $100 call for $2.00 and buy the 60-day $100 call for $3.20. Net debit $1.20, or $120.
- Max loss
- $120 — the debit, if the stock runs far from $100
- Peak profit
- Near $100 at the front expiration — the size depends on back-month volatility
- Breakevens
- Either side of the strike; model them, they are not a formula
This is the honest difference from a vertical. A calendar's maximum profit is not fixed on entry, because it depends on what the 30-day option is worth once the front leg is gone.
Greeks and time decay
Delta is near zero at the strike and turns against you in whichever direction the stock runs. Gamma is negative — movement hurts, stillness helps.
Theta is positive: the front option decays faster than the back one, and that gap widens as the front expiration approaches. Vega is positive, which is unusual for a theta-positive trade. Rising implied volatility lifts the back month more than the front, so a volatility spike can help you here.
Build it in DeltaForm
- Open the builder and choose the symbol.
- Add a short call or put at the strike you expect price to sit near.
- Add a long leg at the same strike in a later expiration.
- Read the debit, then step the date toward the front expiration to see the tent form.
- Change implied volatility to see how much of the value is vega, not theta.
Frequently asked questions
Calls or puts for a calendar?
At the same strike the risk profiles are close to the same. Traders usually pick whichever side is out of the money, since those carry less early-assignment risk.
What happens after the front option expires?
If it expires worthless, you are left holding the long back-month option outright. That is a different trade with different risk, so decide in advance whether you want it.
Why is my calendar losing when the stock hasn't moved?
Check implied volatility. Calendars are long vega. A drop in the back month can outrun the theta you are collecting even on a perfectly still stock.