A calendar spread exploits the passage of time. You sell a near-term call and buy a call at the same strike with a longer expiration. Because the shor…
Profits from time decay (theta) near the strike.
Curve at expiration · dashed line = breakeven · gold ticks = strikes
A calendar spread exploits the passage of time. You sell a near-term call and buy a call at the same strike with a longer expiration. Because the short option decays faster, you profit if the underlying stays near the strike through the short expiry.
Use it when you expect the underlying to trade sideways near the strike in the short term, harvesting the decay (theta) difference between expirations. It is sensitive to implied volatility.
With the example values already loaded in the calculator above, this strategy returns:
The numbers above come from the same engine as the calculator — change the fields to see your own scenario.
The result is not linear at the short expiry because the long option still has time value. The calculator uses Black-Scholes to estimate it, assuming constant implied volatility — in practice, volatility changes alter the outcome.
Because at the short expiry the long option still holds time value. Without a pricing model you can't estimate it — so the curve is an approximation.
Implied volatility. A rise tends to help a long calendar; a drop hurts it.