Calendar Spread

A Calendar Spread is an options spread consisting of a long and short position for the same option entered simultaneously.  The strike price for both option positions are identical, but the expiration dates are different. 

Calendar Spread

A Calendar Spread is an options spread consisting of a long and short position for the same option entered simultaneously.  The strike price for both option positions are identical, but the expiration dates are different. The calendar spread is also referred to as a horizontal spread or time spread.  Calendar spreads can provide a way to add value to your portfolio through your purchase of a long term option with a reduced cost basis, provided by a near term option that you have shorted.


Application of Calendar Spread

A Calendar Spread takes advantage of time value differentials during neutral markets.  Although both options lose value as time passes, the short (sold) option loses value much more quickly than the long option. Therefore, if the prediction of a neutral market is correct, then the value of the Calendar Spread will increase as time passes.

Example neutral Calendar Spread

Example neutral Calendar Spread

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