# Calendar Spreads > A calendar spread sells a near term option and buys a longer term option at the same strike. Learn how it profits from time decay and volatility, with examples. Source: https://learn.tradelabsai.com/options/calendar-spreads/ Track: Options · Level: Advanced · Updated: 2026-10-03 Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice. Cite as: TradeLabs Learn, "Calendar Spreads", https://learn.tradelabsai.com/options/calendar-spreads/ A calendar spread, also called a time spread or horizontal spread, sells an option with a near expiration and buys an option of the same type and strike with a later expiration. Because near term options lose time value faster than longer term ones, the spread can profit if the underlying stays near the strike while the short option decays. Calendars also gain if implied volatility rises in the longer dated option. They are a staple for traders who expect a quiet market in the short term. Futures traders use "calendar spread" for a different trade between contract months, covered in [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/). ## Construction 1. **Sell a near term option** (for example 30 days to expiry). 2. **Buy a longer term option** (for example 60 days) at the same strike. 3. **Both calls or both puts.** 4. **Pay a net debit,** since the longer option costs more. ## How it makes money | Driver | Effect | |---|---| | Time decay | The short option decays faster than the long one: helps | | Price near the strike at the front expiry | Maximum profit zone | | Big move either way | Both options converge in value: hurts | | Rising implied volatility | The long option has more vega: helps | | Falling implied volatility | Hurts | Calendars are long vega and, near the strike, positive theta. That combination is unusual: most positive theta trades are short vega. See [Theta](https://learn.tradelabsai.com/options/theta/) and [Vega](https://learn.tradelabsai.com/options/vega/). ## Worked example **Example: A call calendar** A stock trades at $100 with implied volatility of 25%. You sell the 30 day $100 call for about $2.87 and buy the 60 day $100 call for about $4.05. Net debit: $1.18 ($118). At the front expiry, if the stock is still at $100, the short call expires worthless and the long call, now with 30 days left, is worth about $2.87 if implied volatility is unchanged. The spread is worth $2.87: profit about $1.69 ($169) on $118. If the stock moves to $115 or $85, both options move towards their intrinsic value (or zero) and the spread is worth much less, perhaps $0.30 to $0.50, for a loss of most of the debit. These figures use the at the money approximation 0.4 × price × volatility × √(time in years). Real prices also depend on skew and rates. ## The payoff shape At the front expiration, a calendar's profit and loss looks like a tent centred on the strike: highest when price is at the strike, falling off on either side. The width of the tent depends on implied volatility of the remaining long option. Because the long option still has time value, the exact payoff depends on implied volatility at that time. ## Term structure matters Calendar spreads are sensitive to the shape of the volatility term structure. See [Volatility Term Structure](https://learn.tradelabsai.com/volatility/volatility-term-structure/). - **Front month volatility higher than back month** (common before earnings or in stress): selling the expensive front option and buying the cheaper back option can be attractive. - **After an event,** front month implied volatility often drops sharply, which helps calendars that sold the event expiry. **Example: An earnings calendar** Earnings are due in two weeks. The option expiring just after earnings has implied volatility of 60%; the next month's option has 35%. A trader sells the earnings expiry and buys the later expiry. After earnings, the front option's volatility collapses, which benefits the spread, provided the stock does not move too far from the strike. See [Earnings Trading](https://learn.tradelabsai.com/strategies/earnings-trading/). ## Choosing strikes - **At the money** for a neutral view. - **Slightly out of the money calls** for a mildly bullish view, or puts for a mildly bearish view, so the profit peak sits at your target. ## Managing a calendar - **Close before the front expiry** to avoid assignment and pin risk. - **Take profits** when the spread has gained a good share of its expected value. - **Exit if price moves well away from the strike.** - **Roll the short option** to the next expiry to repeat the trade, turning it into a series of short options against one long option. ## Risks - **Large moves** in either direction. - **Falling implied volatility** in the back month. - **Early assignment** of the short option, especially in the money before dividends. See [Exercise and Assignment](https://learn.tradelabsai.com/options/exercise-and-assignment/). - **Liquidity in the back month** may be thinner. ## Frequently asked questions ### What is a calendar spread in options? Selling a near term option and buying a longer term option at the same strike, profiting from faster decay of the short option and from rising implied volatility. ### When is a calendar spread most profitable? When the underlying is near the strike at the front expiration and implied volatility in the long option holds steady or rises. ### What is the risk of a calendar spread? A large move away from the strike or a drop in implied volatility can cause the spread to lose most of the debit paid. Next, add different strikes to the mix in [Diagonal Spreads](https://learn.tradelabsai.com/options/diagonal-spreads/). ## Continue learning - Next lesson: [Diagonal Spreads](https://learn.tradelabsai.com/options/diagonal-spreads/) - Previous lesson: [Bear Call Spread](https://learn.tradelabsai.com/options/bear-call-spread/) - Related: [Bear Call Spread](https://learn.tradelabsai.com/options/bear-call-spread/): A bear call spread sells a call and buys a higher strike call for a credit. Learn the payoff, how it caps short call risk, strike choices and trade management. - Related: [Diagonal Spreads](https://learn.tradelabsai.com/options/diagonal-spreads/): A diagonal spread buys a longer dated option and sells a shorter dated one at a different strike. Learn how it works, the poor man's covered call and its risks. - Related: [Theta](https://learn.tradelabsai.com/options/theta/): Theta measures how much an option loses in value each day as time passes. Learn how decay speeds up near expiry and why sellers collect what buyers pay. - Related: [Vega](https://learn.tradelabsai.com/options/vega/): Vega measures how much an option's price changes for a 1 point move in implied volatility. Learn how it varies by expiry and why it matters around events. - Related: [Volatility Term Structure](https://learn.tradelabsai.com/volatility/volatility-term-structure/): The volatility term structure plots implied volatility across expiries. Learn what upward and inverted curves mean, how events show up and how traders use it. - Related: [Calendar Spreads in Futures](https://learn.tradelabsai.com/futures/calendar-spreads-in-futures/): A futures calendar spread buys one contract month and sells another. Learn bull and bear spreads, what moves them, seasonality and a worked crude oil example.