Reverse Spreads 
In general, when a strategy has the term "reverse" in its name, the strategy is the 
opposite of a more commonly used strategy. The reader should be familiar with this 
nomenclature from the earlier discussions comparing ratio writing (buying stock and 
selling calls) with reverse hedging (shorting stock and buying calls). If the reverse 
strategy is sufficiently well-known, it usually acquires a name of its own. For exam­
ple, the bear spread is really the reverse of the bull spread, but the bear spread is a 
popular enough strategy in its own right to have acquired a shorter, unique name. 
REVERSE CALENDAR SPREAD 
The reverse calendar spread is an infrequently used strategy, at least for public cus­
tomers trading stock or index options, because of the margin requirements. However, 
even then, it does have a place in the arsenal of the option strategist. Meanwhile, pro­
fessionals and futures option traders use the strategy with more frequency because 
the margin treatment is more favorable for them. 
As its name implies, the reverse calendar spread is a position that is just the 
opposite of a "normal" calendar spread. In the reverse calendar spread, one sells a 
long-term call option and simultaneously buys a shorter-term call option. The spread 
can be constructed with puts as well, as will be shown in a later chapter. Both calls 
have the same striking price. 
This strategy will make money if one of two things happens: Either (1) the stock 
price moves away from the striking price by a great deal, or (2) the inplied volatility 
of the options involved in the spread shrinks. For readers familiar with the "normal" 
calendar spread strategy, the first way to profit should be obvious, because a "normal" 
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