Calendar Spread Using Call Options

A long calendar spread often referred to as a time spread is the buying and selling of a call option or the buying and selling of a put option with the same strike price but having different.

Calendar spread using call options. Setup of a calendar spread strategy. Neutral calendar call spread. Depending on the near term outlook either the neutral calendar call spread or the bull calendar call spread can be employed.

A calendar call spread is created when long term call options are bought and near term call options with the same strike price are sold. When running a calendar spread with calls you re selling and buying a call with the same strike price but the call you buy will have a later expiration date than the call you sell. If a call or put is bought with long term expiration it is called back month.

If a call or put is sold with near term expiration it is called front month. An exception to this rule comes when one of the quarterly spy dividends is about to come due. Or they may be constructed using long calls with a more intermediate expiration date such as 6 9 months away.

Advantages of calendar spreads over covered calls. Calendar spreads can be constructed using really longer dated options like leaps where the expiration date may be anywhere from a year up to 2 1 2 years away. The choice of using puts or calls for a calendar spread is most relevant when considering at the money spreads.

Calendar horizontal call spread. It involves two transactions. 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.

You re taking advantage of accelerating time decay on the front month shorter term call as expiration approaches. Calendar spread is a trading strategy for futures and options to minimize risk and cost by buying two contracts or options with the same strike price and different delivery dates. When buying at the money calendar spreads the least expensive choice puts or calls should usually be made.