Calendar Spreads 
A calendar spread, also frequently called a time spread, involves the sale of one 
option and the simultaneous purchase of a more distant option, both with the same 
striking price. In the broad definition, the calendar spread is a horizontal spread. The 
neutral philosophy for using calendar spreads is that time will erode the value of the 
near-term option at a faster rate than it will the far-term option. If this happens, the 
spread will widen and a profit may result at near-term expiration. With call options, 
one may construct a more aggressive, bullish calendar spread. Both types of spreads 
are discussed. 
Example: The following prices exist sometime in late January: 
XYZ:50 
April 50 Call 
(3-month call) 
5 
July 50 Call 
(6-month call) 
8 
October 50 Call 
(9-month call) 
10 
If one sells the April 50 call and buys the July 50 at the same time, he will pay a debit 
of 3 points - the difference in the call prices plus commissions. That is, his invest­
ment is the net debit of the spread plus commissions. Furthermore, suppose that in 3 
months, at April expiration, XYZ is unchanged at 50. Then the 3-month call should 
be worth 5 points, and the 6-month call should be worth 8 points, as they were pre­
viously, all other factors being equal. 
XYZ:50 
April 50 Call 
(Expiring) 
0 
July 50 Call 
(3-month call) 
5 
October 50 Call 
(6-month call) 
8 
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