PREMIUMLong Calendar Spread with Calls
Overview:
Calendar spreads often require significant diligence from investors due to the options expiring in different months. The strategy is also referred to a as a ‘time spread’ due to the different expiration months. The investor employs this strategy by selling an at-the-money call option in the earlier month and purchasing an at-the-money call option in the later month.
Main Uses:
- The first reason an investor would invest in a long calendar spread with calls is to take advantage of time decay on the front-month option. The investor is hoping the back-month call will have significant time value.
- The second reason an investor would invest in a long calendar spread with calls is if the investor expects the underlying stock price not to move significantly between now and the expiration of the front-month call option.
Profit / Loss Calculator:
The below graph is a profit / loss graph of a long calendar spread with calls using the OptionsHouse P&L calculator. The current stock price is $114.08. An at-the-money call option was sold with an expiration during this month with a strike price of $114. An at-the-money call option was purchased with an expiration during next month with a strike price of $114. The break-even prices are $112.36 and $115.72. If the stock price remains between those two prices the investor will make money.
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