Calendar Spread
Sell a near-term call and buy a longer-dated call at the same strike. You profit from the short option decaying faster than the long one.
Written by the MarketWrench team. Examples are worked with the same Black-Scholes model used in our calculators (4% rate, no dividends unless stated) and are reviewed for accuracy before publishing. How we create content.
Payoff at expiration
The chart shows profit/loss when the short call expires. The long call is valued with Black-Scholes using the days left and IV you enter, so it is an estimate.
When traders use it
You expect the stock to stay near the strike in the short term, and you'd like IV to stay steady or rise.
Formulas (per share; ×100 per contract)
| Max loss | Net debit (if closed at front expiration) |
| Max profit | Varies; highest near the strike at front expiration |
| Breakevens | Depend on IV; estimate with a model |
Key risks
A big move either way shrinks the long option's time value. Falling IV hurts the long leg. The payoff can't be known exactly in advance because the long option still has time left.
How it works
Sell a 30-day call and buy a 90-day call at the same strike. When the front call expires, you still hold the back call with 60 days left. If the stock is near the strike, the back call still holds most of its time value, while the short call expired worthless.
Worked example HYPOTHETICAL
Hypothetical example only — not real prices or a recommendation. Stock at $100. Sell the 30-day $100 call for $3.59 and buy the 90-day $100 call for $6.41. Net debit $2.82 ($282). Values at front expiration below use our model with IV unchanged at 30% (approximate).
| Stock price at expiration | P/L (1 contract, excl. fees) |
|---|---|
| $90 | −$147 |
| $95 | +$3 |
| $100 | +$235 |
| $105 | +$47 |
| $110 | −$74 |
Market outlook: when to use it
Use when: Low-movement expectations, or when near-term IV is high relative to longer-term IV.
Avoid when: Ahead of events likely to cause big moves, or when IV is likely to drop sharply on the long leg.
The Greeks, in plain words
| Delta | Near zero at the strike. |
| Theta | Positive: the front option decays faster. |
| Vega | Positive: rising IV helps the longer option more. |
| Gamma | Negative. |
Choosing strikes and expiration
Pick the strike at your expected price. Common setups sell 20–45 days and buy 50–120 days. See how to pick a strike and expiration.
Managing the trade
Close the whole spread before front expiration. Some traders roll the short call to the next month to keep collecting decay.
Common mistakes
- Treating the payoff chart as exact; it depends on future IV.
- Holding the short option into expiration while ITM.
- Ignoring earnings between the two expirations.
FAQ
Is a calendar spread defined risk?
If you close both legs together at or before front expiration, the max loss is roughly the debit paid.
What is a diagonal spread?
A calendar with different strikes. The poor man's covered call is one example.
Explained simply
You pay $282. If the stock is near $100 in 30 days, the option you sold is worthless while the one you kept is still worth around $5.17, for a gain of about $235.
Not financial advice
This page is for educational and informational purposes only. It is not financial, investment, tax, or legal advice, and it is not a recommendation to buy or sell any security or to use any strategy. All examples use hypothetical numbers. Options involve risk and are not suitable for everyone. Do your own research and consider talking to a licensed professional before trading.
Read next
Theta and Time Decay · What Is Implied Volatility? · All Learn articles
Related strategies
Poor Man's Covered Call · Butterfly · Covered Call
Watch: further explanation
Video coming soon. Our Calendar spreads walkthrough is in production. Meanwhile, browse the MarketWrench YouTube channel.
Calculators for this strategy
Options Profit Calculator · Probability of Profit Calculator · Assignment Risk Checker · IV Rank Calculator