The call calendar spread, also known as a time or horizontal spread, is a versatile neutral options spread strategy that profits from a stagnant or non-trending market. The calendar gets its name because it involves two options in the same asset that expire in different months. A call calendar spread has a longer-term bullish bias within the current neutral range bound trading.
The typical call calendar spread is constructed through two simultaneous trades: (1) purchase of an option, and (2) sale of another option with the same strike price but with an earlier expiration. Two primary uses for call calendar spreads:
- Attempt to profit from range-bound markets.
- Take advantage of the different time decay rates in different expiration months.
The call calendar spread strategy combines a longer-term bullish outlook with a near-term neutral to mildly bearish outlook. If the asset remains steady or declines during the life of option it will expire worthless, leaving you the further out option free and clear. This strategy will, typically, require a premium be paid to initiate the position if both options have the same strike price.
Summary: The call calendar spread is an options strategy designed to help profit from a range bound market with limited price movement. It is a way of potentially exploiting time decay that is priced into option premiums. A calendar spread earns its name from option positions in two different expiration times or months that use the same strike and option kind. This strategy combines a longer-term bullish outlook with a near-term neutral to mildly bearish outlook. If the asset remains steady or declines during the life of the near-term option the option will expire worthless and leave the investor owning the longer-term option free and clear. If both options have the same strike price, the strategy will always require paying a premium to initiate the position.