Calendar Spreads
Definition : A calendar spread, sometimes called a time spread or a
horizontal spread , is an option strategy that involves buying one option and
selling another option with the same strike price but with a different
expiration date.
At-expiration diagrams do a calendar-spread trader little good. Why? At
the expiration of the short-dated option, the trader is left with another option
that may have time value. To estimate what the position will be worth when
the short-term option expires, the value of the long-term option must be
analyzed using the greeks. This is true of the variants of the calendar—
double calendars, diagonals, and double diagonals—as well. This chapter
will show how to analyze strategies that involve options with different
expirations and discuss how and when to use them.