Calendar Spread

Sell near-dated, buy far-dated; profit from time decay differential. Outlook: neutral. Direction: debit. Risk: defined.

A calendar spread (also called a time spread or horizontal spread) is built by selling a near-dated option and buying a far-dated option at the same strike. You pay a small net debit because the long leg is more expensive, but theta on the near leg decays faster than on the far leg, so the spread widens as the near leg approaches expiration.

Calendars are also a term-structure trade: they profit when the near-dated IV collapses more than the far-dated IV. This is exactly the dynamic around earnings and other known events where the weekly IV spikes on the event expiration and then crashes after.

Break-Even

No stable closed-form break-even. The P/L at near-leg expiration depends on the residual value of the far-dated leg, which itself depends on far-leg IV and days remaining. The break-even band is narrowest around the short strike and widens when far-leg IV rises. Use the strategy builder for a live break-even curve on a specific ticker.

Max Profit

Achieved if spot is near the strike at near-leg expiration. The near leg expires worthless; the far leg retains most of its value.

Max Loss

Limited to the net debit paid × 100 × contracts. If both legs move deep ITM/OTM together, the spread collapses toward zero.

When to Use

• You expect range-bound price action through the near-leg expiration.
• Term structure is in backwardation (near IV > far IV); sell the expensive near leg, buy the cheap far leg.
• Pre-earnings: sell the event-week option, buy the next-month option. Profit from the event-premium collapse.
• You want defined-risk exposure to term-structure dynamics rather than price direction.

Common Pitfalls

• Big directional moves in either direction kill the spread; both legs go deep ITM or OTM together.
• The position is net long vega (long the far leg vega); general vol expansion helps, but term-structure steepening can hurt.
• Pin risk at the short strike near the near-leg expiration.
• Rolling the short leg (a rolling calendar) adds complexity and transaction costs.

Try This on a Live Ticker

The strategy builder applies any structure to a live ticker with real Greeks and expiration P/L: SPY · QQQ · AAPL · NVDA · TSLA.