Call Calendar Spread Strategy

The Call Calendar Spread is a time-based options strategy that involves selling a short-term call and buying a longer-term call at the same strike price. It’s designed to profit from minimal price movement in the near term and rising volatility or directional movement in the longer term. This strategy is ideal for traders who expect the underlying asset to stay near a specific price before eventually trending upward.

Structure

• Sell 1 short-term call (near expiration)
• Buy 1 long-term call (later expiration)
• Both calls have the same strike price

Profit & Loss Profile

• Max Profit: Occurs if the stock is near the strike price at short call expiration
• Max Loss: Limited to the net debit paid to enter the trade
• Breakeven: Depends on volatility and time value of the long call after short call expires

Ideal Market Conditions

• Neutral to slightly bullish short-term outlook
• Expecting increased volatility or upward movement after short call expires
• Best when implied volatility is low at entry and expected to rise

Example

A stock is trading at $100. You:

• Sell 1 call expiring in 1 week at $100 for $2
• Buy 1 call expiring in 1 month at $100 for $5

Net debit = $3. If the stock stays near $100, the short call expires worthless and the long call retains value. If the stock rises afterward, the long call gains further.

Risks & Considerations

• Requires precise timing and volatility forecasting
• Early assignment risk on short call if in-the-money
• Time decay works against the long call after short call expires