Sell a near-expiry contract + buy a farther contract at the same strike. Benefits from the theta difference between the two.
The structure
A Calendar Spread sells a near-dated option and buys the same strike at a later date. The bet is on the difference in time speed: theta eats the near option faster than it touches the far one, so the gap widens if the price stays quiet near the strike.
When to use it
Use it when you expect a short quiet spell but still care about the later date: the sold near option dies worthless, which lowers the effective cost of the far one you hold. It has a second side: the far option is more sensitive to implied volatility, so a later rise in implied volatility helps it.
Maximum profit and loss
Maximum loss is the net amount paid. Maximum profit comes if the near option closes exactly at the strike, and there is no simple closed formula for it, because it depends on the far option’s value at that moment. A big move away from the strike in either direction hurts both legs.
Hypothetical example
A stock at $100: sell a weekly call with a $100 strike for $1.50 and buy a monthly call at the same strike for $3.50, net cost $2. The week ends with the stock at $100: the near option died, and the far one is still worth about $3. The position is worth more than it cost, and the cycle can repeat for another week.
Common mistake
Placing it across an event that falls between the two expirations: the event blows up the sold near option against you while the far one does not make up enough. Check the event calendar before any Calendar Spread.
What it really bets on
It is not a bet on direction but on the difference in decay between the two expirations: the near option melts faster than the far one, so the seller gains from the gap while the price stays near the strike. Its biggest risk is that it is long vega: a volatility jump lifts the far expiration more and works in its favor, and a collapse reverses that.
Where to see it on the platform
The calculator prices each leg separately, and its time-decay curve shows the same idea: watch the near option slide while the far one holds up.
The structure calculator builds it with both expirations, and the volatility tools show the term structure it is based on.
