Calendar Spread With Call Options

If the trader sells a near term option and buys a longer term option the position is a long calendar spread.

Calendar spread with call options. A long calendar spread with calls is created by buying one longer term call and selling one shorter term call with the same strike price. It is sometimes referred to as a horizonal spread whereas a bull put spread or bear call spread would be referred to as a vertical spread. The paradox behind this strategy is that you need the price of the stock to be relatively stable but you also want some volatility in.

This can give you a lower up front cost. The long calendar spreads are often considered to be long volatility trades. A calendar is comprised of a short option call or put in a near term expiration cycle and a long option call or put in a longer term expiration cycle.

If a call or put is bought with long term expiration it is called back month. A calendar spread is an option trade that involves buying and selling an option on the same instrument with the same strikes price but different expiration periods. The diagonal call calendar spread is a more complex option strategy dedicated to the more advanced traders.

In order to maximize the profits of the call calendar spread strategy one must forecast the strike price to be the same on the expiration date of the short call option. You can only capture time value. A calendar spread is a strategy involving buying longer term options and selling equal number of shorter term options of the same underlying stock or index with the same strike price.

In the example a two month 56 days to expiration 100 call is purchased and a one month 28 days to expiration 100 call is sold. There are two types of long calendar spreads. There are inherent advantages to trading a put calendar over a call calendar but both are readily acceptable trades.

A long calendar spread is a low risk directionally neutral strategy that profits from the passage of time and or an increase in implied volatility. If you re anticipating minimal movement on the stock construct your calendar spread with at the money calls. Calendar spread involves options of the same underlying asset the same strike price but with different expiration dates.