Spread

Calendar Spread

Same strike, same type, different expirations.

Expiration payoff profile for Calendar Spread
Payoff at expiration

A calendar spread involves buying one option and then selling another option of the same type (put or call) and the same strike price but with a different expiration date.

A long calendar spread is long the longer-dated option and short the shorter-dated option. The risk is limited to the net amount of premium paid, and the potential profit is theoretically unlimited.

A short calendar spread is short the longer-dated option and long the shorter-dated option. The maximum potential profit is the premium received, and the maximum risk is theoretically unlimited if the shorter-dated option expires and nothing is done to cover the remaining short option position.

Cheat sheet

Calendar Spread Cheat SheetPDF

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