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Calendar Spread |
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Also known as time or horizontal spreads, calendar spreads involve options with different expiration months. The term horizontal comes from the fact that option months were originally listed on the board at the exchange from left to right, with strike prices listed from top to bottom. Because of this, options with different strike prices but the same expiration are frequently referred to as vertical spreads.
Plainly put, a long calendar spread entails buying an option with a longer expiration and selling an option with the same strike price but a shorter expiration. For example, let’s say Hewlett-Packard is trading for $45 per share. To kick off a calendar spread, the trader might sell the Hewlett-Packard June 45 calls and buy the July 45 calls.
As with most long positions, there is a cost associated with this trade. In this case, the price is $2. For the time spread to work, the June option must lose its time premium faster than the July option. If the stock price remains comparatively stable as the June expiration approaches, the value of the spread ought to increase. With only one month remaining before the June expiration, the position could be closed for a one-point profit by selling the July calls and buying back the June calls.
For long calendar spreads to be profitable, the fundamental stock price must remain relatively stable. Any swings in either direction will impact the time value of both options in a negative manner, causing the spread to lose value.
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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History