The Calendar Spread Strategy: How and When Option Traders Might Use Them

Also known as time or horizontal spreads, a calendar spread can be created with either puts or calls. It is called a calendar spread because the investor is selling an option and buying another option with a more distant expiration date, but at the same strike price. The strategy is most successful when the stock price moves to the strike price picked.

The call calendar spread involves the purchase of a call and the sale of another call at the same strike, but of a shorter duration. A common approach is to sell (and buy) a strike price that is just above the current stock price.

Stocks that pay a dividend ... are you at risk of assignment? When an investor is short a call, as part of a calendar spread or anything else, the risk of early assignment will increase as ex-dividend day for the underlying stock approaches. That's because the long call holder might exercise the contract to buy shares and collect the dividend. The risk is different with puts because it is not about the dividend but the people may exercise puts early so as not to pay carry cost on stocks.

The idea is to have time working in your favor because shorter-term options lose value at a faster rate compared to longer-term ones. In a best-case scenario, the stock price is just near (below) the strike price of the short calls through the first expiration. While those are expiring out of the money, the long calls will still have retained value.

The maximum potential profits and breakevens of a call calendar spread are difficult to compute beforehand because there are two expirations to consider. Some trading platforms, like the risk profiles on the thinkorswim® platform, can help us make estimates and decide what strike prices offer the most compelling risks and rewards.

One thing is for certain, however. Since the long call in the spread costs more (higher premium) than the short call at the same strike but with a less distant expiration, the long call calendar spread is a debit trade. That is, it costs money to open the position and, the entire amount invested will be lost if the options expire worthless. That’s a worst-case scenario. However, because you sold a nearer term option time decay works in your favor.

Figure 1: Standard Risk/Reward of a Long Call Calendar Spread

As we can see from Figure 1, the position doesn’t fare very well if the stock rallies either. That’s because, if the stock advances too much and the short calls are in the money before expiration, the investor will be forced out of the spread. That means either they need to cover the short calls with a buy to close transaction or potentially face assignment heading into the expiration of the short call. If assigned, the investor will sell (have called) the stock at the strike price. While the long call can be exercised to cover the assignment, that might or might not be the optimal play. It will depend on how much time value is remaining in the long call. If you aren’t sure, ask your broker.


Whether trading call or put calendar spreads, the strategy is best suited for investors with previous options trading experience and that understand the risks of the position, including exercise and assignment. It is very important to know what to do as the first expiration approaches. At this time, the investor can either close entirely or, if possibly choose to roll the spread, which means to buy back the nearer term option and sell one in the next expiration. Also note that the position can be closed prior to the first expiration as well, which is often a way to bank a profit if enough time has passed and the stock hasn’t seen a lot of vertical movement. A good place to start when searching for potential calendar plays is in names that are expected to trade in a range. The short options might have 20 to 40 days to expiration and the long options 50 to 90 days.