Playbook: Spreads: the Long Call Calendar Spread

The long call calendar spread (or ‘long horizontal spread’ or ‘counter spread’ or ‘time spread’) is a neutral/slightly bullish strategy that is spread over time and combines a long call in the front month with a short call in the back month, for which you have to pay a net debit. For this strategy, we are looking for stagnant to mildly bullish stocks.

Long Calendar Call Spread

The long calendar call is a debit spread (you will have to pay for it). It is a long call further out in time (‘back month’)  ‘protected’ on the downside by a short call at an earlier expiry date (‘front month’). The short call reduces your cost. The disadvantage is that you cap potential on the upside, so you don’t want underlyings to go up very high (lost potential). Therefore you want the underlying to remain neutral or only slightly bullish.

You typically buy a long calendar call 1 to 1.5 month months before expiration.

The long calendar call spread is the opposite of the long calendar put spread.

The position benefits from time decay, steady/moderately decreasing underlying price (near-term), followed by an underlying price increase (further-dated), along with IV/IVR expansion.

The long calendar spread with calls is also known by two other names, a “long time spread” and a “long horizontal spread.” “Long” in the strategy name implies that the strategy is established for a net debit, or net cost. The terms “time” and “horizontal” describe the relationship between the expiration dates. “Time” implies that the options expire at different times, or on different dates. The term “horizontal” originated when options prices were listed in newspapers in a tabular format. Strike prices were listed vertically, and expirations were listed horizontally. Therefore a “horizontal spread” involved options in the same row of the table; they had the same strike price but they had different expiration dates.










Slightly bullish

Low (<30)

Entry: 32 -48 DTE
Exit: <21 DTE


Defined: the net debit paid (premium)

Capped: the credit. Cost for the remaining long call: debit – credit

[Long call value at the time of the short call expiration,
when the stock price is at the strike price] – [net debit]

Long call ATM/OTM in front month

Short Call  ATM/OTM in back month

MS Long Calendar ATM Short Call 97.5 17 March 23 and Long Call 97.5 21 April 23



The structure of a call calendar spread is the purchase (long) of a long-term Call while selling (short) a short-term call of the same strike price. Use an at-the-money call for a stagnant market and strike slightly out-of-the-money for mildly bullish anticipation. We can use a slightly ITM call for a mildly bearish outlook; however, this could be better achieved with a put calendar spread.

These are the considerations for entering a long call calendar spread:

  • Tthe forecast is for stock price action near the strike price of the spread because the strategy profits from time decay. 
  • To profit from neutral stock price action near the strike price of the short calls (center strike) with limited risk.
  • The expectation that underlying (stock, ETF, index, future) will remain neutral or slightly rise:  You’re anticipating minimal movement on the stock within a specific time frame.  the outlook is neutral/bullish.
  • Long calendar spreads are great strategies for options traders who believe the stock price will trade near the short option price, allowing traders to profit from “pinning” the future stock price to this strike
  • So, never trade a calendar spread using volatile underlyings.
  • Implied Volatility (IV)/IVR (IV Rank) is low (<30), looking for options with the short call to decrease and the long call to increase in value over time.
  • Diversifying portfolio strategies.
  • Improving buyer power in higher-priced underlyings.
  • Looking to reduce the cost of long call.
  • Creating something similar to a Covered Call, but with a better yield and without the expense.
  • Looking to profit In the near-term expiration, increase potential gains in the further-dated expiration; the difference in the speed of time decay between the short and long options allows long calendar spreads to profit
  • The underlying has just experienced a /decline, which gives you a strong entry.
  • Risk is limited (‘defined’) to the premium paid (‘debit’).
  • The maximum reward is capped to the premium paid (‘debit’).
  • You can make a better return than if you had bought the underlying itself.
  • Executing a neutral/ bullish trade for a capital gain at reduced maximum risk due to that you sell a call as well.
  • It’s difficult to sell (‘short’) premium, so it is a leveraged alternative to selling/shorting the underlying.
  • Bringing down the cost, risk, and breakeven on the trade compared to buying (only) the long call.
  • Wanting to stay engaged after having reached maximum portfolio allocation for (e.g.) short premium strategies.
  • Hedging against bearish/short positions.
  • When you buy and therefore own an option, you are exposed to time (value) decay (‘hurts’), so typically, expiration dates should be reasonably far away (so >90 up to 180 DTE or even higher) to give you more time and a chance of the option increasing in value; so the period to trade is at least three months, preferably longer.



  1. ‘Sell to open’ (STO) the call option ( in US 1 contract = 100 shares) ATM/OTM  near-term 32-48 DTE (in ‘front month’) 
  2. ‘Buy to open’ (‘BTO’) the call option in a further-dated expiration (normally one month later), at the same ATM/OTM strike. 
  • Sell the same number of strikes
  • Calls positioned ATM: neutral; if you’re bullish, then choose a higher strike; look at either of the next two expirations for the short option and compare monthly yields.
  • Calls positioned OTM: lower net Debit/greater profit potential; ideally one month (but look for up to six months for better long option with better potential).
  • If the stock price is at or near the strike price when the position is established, then the forecast must be for unchanged, or neutral, price action.
  • If the stock price is below the strike price when the position is established, then the forecast must be for the stock price to rise to the strike price at expiration (modestly bullish).
  • Minimal IV/IVR differential between both expirations
  • Generally, the stock will be at or around strike A.  Because the front-month and back-month options both have the same strike price, you can’t capture any intrinsic value on the options. You can only capture time value. However, as the calls get deep in-the-money or far out-of-the-money, time value will begin to disappear. Time value is maximized with at-the-money options, so you need the stock price to stay as close to strike A as possible
  • If you’re anticipating minimal movement on the stock, construct your calendar spread with at-the-money calls. If you’re mildly bullish, use slightly out-of-the-money calls. This can give you a lower up-front cost

With calendar spreads, you don’t have to trade near-the-money strikes; you can choose whatever strike price you want. When you buy a calendar spread, your aim is to “pin” the future stock price as closely as you can to your chosen short strike price. The further away from the market price you go, the more profit you make (and the lower odds of success you’ll have!).

Long call should have a life expectancy of 6 months or more. Sell (short) ATM (or slightly OTM) calls. Short call should have a life expectancy of 45 days or less.

Long and short equal numbers of contracts (Never short more contracts than you are long). The value of the short call should be greater than or equal to 25% of the long calls value (this will cover the theta and commissions cost of the trade).


MS trading at $96.50 on 27 Jan 2022. IV/IVR <30.

Sell 1 short call at 97.5 at Mar 17 (‘front month’) strike ATM positive 0.46 delta for a $266 credit call premium (to be credited to your account)

Buy 1 long call at 97.5 at Apr 21 strike ATM positive 0.48 delta for a $415 debit call premium (to be paid)

Resulting in a debit to be paid of $149.







$233 (= net debit paid)

$267 (spread width – net debit paid)


Lower strike price + net debit


The long call calendar spread combines a long call and a short call at the same strike at different expiration dates, and is one of the ‘horizontal’ or ‘calendar’  or ‘time’ spread strategies (the other ones are: xx) and the basis for the double or dual calendar spread. If the calls are not at the same strike and ta different expiration dates, it is a ‘diagonal spread’.

The long calendar call can also be seen as a variation of a Covered Call, where you substitute the long stock with a long-term long call option instead.

Long calendar spreads with calls are frequently compared to short straddles and short strangles, because all three strategies profit from “low volatility” in the underlying stock. The differences between the three strategies are the initial investment (or margin requirement), the risk and the profit potential. In dollar terms, short straddles and short strangles require much more capital to establish, have unlimited risk and have a larger, albeit limited, profit potential. Long calendar spreads, in contrast, require less capital, have limited risk and have a smaller limited profit potential. Traders who are not suited to the unlimited risk of short straddles or strangles might consider long calendar spreads as a limited-risk alternative to profit from a neutral forecast. One should not forget, however, that the risk of a long calendar spread is still 100% of the capital committed. The decision to trade any strategy involves choosing an amount of capital that will be placed at risk and potentially lost if the market forecast is not realized. In this regard, choosing a long calendar spread is similar to choosing any strategy.






Delta (direction speed)


Long call = positive; short call = negative.

Delta (speed) is at its fastest on either side of the strike price, indicating the increasing speed of the position in one direction and then the other.

The net delta, as expiration approaches, varies from −0.50 to +0.50 depending on the relationship of the stock price to the strike price of the spread.

Gamma (acceleration)


Gamma (acceleration) peaks inversely
around the strike price, showing where
the Delta line is steepest.

Theta (time decay)


Long call = negative; short call = positive.

Theta is positive, illustrating that time
decay is helpful to the position around the strike price, where the position is

Time decay is not so helpful when the position is unprofitable.

Since a long calendar spread with calls has one short call with less time to expiration and one long call with the same strike price and more time, the impact of time erosion is positive if the stock price is near the strike price of the calls.

Furthermore, the positive impact of time erosion increases as expiration approaches, because the value of the short-term short at-the-money call decays at an increasing rate

If the stock price rises above or falls below the strike price of the calendar spread, however, the impact of time erosion becomes negative. In either of these cases, the time value of the shorter-term short call approaches zero, but the time value of the longer-term long call remains positive and decreases with passing time..

Vega (volatility)


Long options, therefore, rise in price and make money when volatility rises, and short options rise in price and lose money when volatility rises. When volatility falls, the opposite happens.

Since a long calendar spread with calls has one short call with less time to expiration and one long call with the same strike price and more time, the impact of changing volatility is slightly positive, but very close to zero.

Increasing volatility is helpful because it will mean the long call’s residual value should be higher.

The net vega is slightly positive, because the vega of the long call is slightly greater than the vega of the short call. As expiration approaches, the net vega of the spread approaches the vega of the long call, because the vega of the short call approaches zero.

Rho (interest)


Higher interest rates become more helpful as the underlying asset price rises

For this strategy, time decay is your friend. Because time decay accelerates close to expiration, the front-month call will lose value faster than the back-month call.

After the strategy is established, although you don’t want the stock to move much, you’re better off if implied volatility increases close to front-month expiration. That will cause the back-month call price to increase, while having little effect on the price of the front-month option. (Near expiration, there is hardly any time value for implied volatility to mess with.)


Profitable bull calls require correctly selecting neutral/slightly bullish underlyings AND good timing.


  • Acknowledge whether market sentiment allows trade.
  • Check whether trade fits in portfolio allocation rules.
  • Ensure stock meets all of your selection criteria (volume, open interest, ask-bid range, etc.).
  • IV/IVR below 30%.
  • Ensure the trend is upward/bullish.
  • Ensure at least three of the technical momentum indicators are positive.
  • Identify the clear areas of support and resistance.
  • Make sure there are no major events (dividends, earnings) within 30 days of the expiry date.
  • Profitability of Profit at selected strike: around 50%.
  • Backtest (since 2006 and last 200 trades): at least $1.00 (average and mean) profit/day.

Technical Indicators Used

  1. Trend = bullish
  2. Support & Resistance = the underlying has just experienced a pullback/decline to clear support level
  3. RSI = oversold
  4. Bollinger Bands in combination with Keltner Squeeze: at the bottom and outside Keltner bands
  5. ADX/DMI: increasing up and above 20
  6. ATR low


Net Position

Net debit, because you pay to buy the calendar call spread.

Theoretical Profit

You want the stock price to be at strike A when the front-month option expires. Underlying price unchanged: the maximum reward is the net debit. (?)

The exact maximum profit potential and breakeven cannot be calculated due to the differing expiration cycles used. However, the profit potential and breakeven area can be estimated with the following guidelines. One of the most positive outcomes for a calendar spread is for the trade to double in price

This initial yield is not necessarily reflective of the maximum yield at the expiration of the short-term short call. The maximum yield will depend on both the stock price and the residual value of the long unexpired call.

Back Month Premium (minus) Front Month Premium (minus) Net Spread Debit

Over time, as time decay, or the Greek “theta”, goes to work on the options, this spread becomes much more responsive. The spread reaches its highest profitability just a few days before expiration.

When purchased near/at the money, the short call decreases at a faster rate than the long call.  Remember, it’s not the individual prices that we’re concerned with, it’s the spread between the prices. 

Since the short option loses more than the long option, the value of the spread increases. Since we own the spread, this is a good thing!

more rapid time decay in the short, near-term option (higher theta) than in the longer-term option that’s bought is typically how a profit is made in a calendar spread.

Maximum profit is achieved when the stock is at the strike price at the time of the short call expiration date. However, see below: any substantial move up or down is dangerous for the position.

The maximum profit is realized if the stock price equals the strike price of the calls on the expiration date of the short call. This is the point of maximum profit, because the long call has maximum time value when the stock price equals the strike price. Also, since the short call expires worthless when the stock price equals the strike price at expiration, the difference in price between the two calls is at its greatest.

It is impossible to know for sure what the maximum profit will be, because the maximum profit depends of the price of long call which can vary based on the level of volatility

Theoretical Risk/Risk Profile

The problem with a Calendar Call is in the very essence of the shape of the risk

Any substantial move up or down is dangerous for the position.

The maximum risk is the price you initially pay for the position (‘net debit/premium’) which is the difference between the net debit paid for the long call less the net credit received for selling the short call.

Your maximum risk on the trade itself is limited to the net debit of the bought calls less the sold calls. Your maximum reward is limited to the residual call value when the stock is at the strike price at the first expiration, less the net debit.

This is realized if the underlying price increases/decreases beyond the profit range.

If the stock rises too far too soon, then the Calendar Call can become loss-making. So even though
you got the direction of the trade right, you could still lose money! This happens because the long call, being near the money, only moves at around half the speed as the underlying stock as the stock price rises.

Example: in the event of exercise, if the stock has risen by $10.00 from $30.00, and the option has only risen by $5.00, you may be exercised on the short call; therefore you buy the stock at $40.00 and sell it at $30.00 (if that was the strike), yet your long call has only risen by $5.00, giving you a $5.00 loss. If you only received $2.00 for the short call, you’re looking at a $3.00 loss on the trade. So you want the stock to remain at the strike price at the first expiration.

The maximum risk of a long calendar spread with calls is equal to the cost of the spread including commissions. If the stock price moves sharply away from the strike price, then the difference between the two calls approaches zero and the full amount paid for the spread is lost. For example, if the stock price falls sharply, then the price of both calls approach zero for a net difference of zero. If the stock price rallies sharply so that both calls are deep in the money, then the prices of both calls approach parity for a net difference of zero.


Underlying price > long call strike by the amount of the net debit.

Depends on the value of the long call option at the time of the short call expiration

It is possible to approximate break-even points, but there are too many variables to give an exact formula. A guideline we use is within 1 strike of the calendar spread’s strike price

Because there are two expiration dates for the options in a calendar spread, a pricing model must be used to “guesstimate” what the value of the back-month call will be when the front-month call expires

Conceptually, there are two breakeven points, one above the strike price of the calendar spread and one below. Also, conceptually, the breakeven points are the stock prices on the expiration date of the short call at which the time value of the long call equals the original price of the calendar spread. However, since the time value of the long call depends on the level of volatility, it is impossible to know for sure what the breakeven stock prices will be.


Halfway to/Near Expiration

  • This strategy profits from time decay, and stock price action can be unsettling as it rises and falls around the strike price as expiration approaches.
  • Trading discipline is required, because “small” changes in stock price can have a high percentage impact on the price of a calendar spread. Traders must, therefore, be disciplined in taking partial profits if possible and also in taking “small” losses before the losses become “big.”
  • If the underlying price increases to/slightly above the short call (higher strike) profit increases because the short call is now closer to the money and decreases in value faster than the long call: both calls are ITM and the maximum profit = spread width – net debit (‘theoretical profit’).
  • If the underlying decreases, the near-term (OTM) short call expires worthless, and the profit is the credit, leaving the long call position (further-dated), with no limit on the upside potential profit.
  • If the underlying is between the call strikes and decreases towards or below the long call (lower strike), the losses increase, because the long call is now closer to the money and decreases in value faster than the short call.
  • If the underlying is close to/below the long call (lower strike), losses further increase because the long call is closer to the money and decreases in value faster than the short call. If the underlying decreases to/below the long call (OTM): both expire worthless, and the loss will be the net debit (theoretical risk).
  • If the stock closes above the strike at expiration, you will be exercised. You will sell your long call, buy the stock at the market price, and deliver it a the strike price, having profited from both the short option premium yo received and the uplift in the long option premium. The exercise of the short option is automatic. Do not exercise the long option, or you will forfeit its time value.
  • Both options share the same strike, so if the stock rises above the strike, your short call will be exercised. You’ll then have to sell the long call (hopefully for a profit), use the proceeds to buy the stock at the market price, and then sell it back at the strike price. Therefore, the best thing that can happen is that the stock is at the strike price at the first expiration. This will enable you to write another call for the following month if you like.

Rules for Managing/Adjusting Position

  • If the PoP is <33%
  • If the underlying price decreases or increases beyond the profit range and a defensive roll is not workable: close the entire position prior to the expiration  for less than the theoretical loss (net debit).
  • If the underlying price goes down/decreases fast: ‘leg out’ (BTC) the untested short call for a fractional debit and hold the long call (if you expect an increase in the underlying price).
  • If this is not workable: allow the limited risk probabilities to play out.
  • Never roll the entire spread out in time.
  • Also, never leg out if the underlying price goes up/increases fast: lock in profits by purchasing the put counterpart (for a fractional debit), adding risk to the initial strategy, neutralizing the portfolio’s ∆β to rebalance (improve the statistical edge).
  • Set alerts on breakeven/predetermined targets.
  • If the stock remains below the strike but above your higher stop loss, let the short call expire worthless and keep the entire premium. You can then write another call for the following month.
  • If the stock falls below your lower stop loss, then either sell the long option (if you’re approved for naked call writing) or reverse the entire position.

Rules for Closing Position/Exiting the Trade

  • For a profit up to 50%, but also accept lower, unravel the spread by buying back the calls you sold and selling the calls you bought in the first place.
  • Close (buy-back) the near-term short call and hold the long call position, if expecting an increase in the underlying price.
  • Or, close (buy-back) the near-term short call and sell another near-term short call (in the same or next expiration to continue the long call calendar position.
  • Leg up and down as the underlying asset fluctuates up and down. In this way, you can take incremental profits before the expiration of the trade.
  • Since the overwhelming purpose of the call calendar spread position is to profit from market stagnation, one should be prepared to allow the short calls to expire worthless.
  • Exiting at expiration? Exit this trade if the short call is ¼ point or more In-the-Money at expiration; exit even if there is a possibility that the short call will move ¼ point or more In-the-Money.
  • If, when approaching the expiration of the short call, the stock has moved up in price, evaluate the position. If you would enter the trade based on this evaluation (following the above guidelines for entry), buy back your short call and sell the next expiration month available. If you would not enter the trade, based on the above rules, exit the entire trade. 

Mitigating a loss

  • To hedge/recover losses you open a high probability position, using a strategy that favors neutralizing the portfolio’s ∆β, to rebalance and create an overall statistical edge, reduce costs or maintain profits (this is always the goals when adding risk to manage limited risk strategies).
  • Work with a (mental) stop loss based on an underlying asset of either 50% or 100% of the premium paid; if the underlying falls below the stop loss, exit by selling the calls.
  • Partially unravel the spread leg-by-leg. In this way, they will leave one leg of the spread exposed in order to attempt to profit from it



  • Generate monthly income.
  • Can profit from rangebound stocks and make a higher yield than with a Covered Call


  • Can lose on the upside if the stock rises significantly.
  • High yield does not necessarily mean a profitable or high probability profitable trade.
  • Capped upside if the stock rises (loss of opportunity).


Both options share the same strike, so if the stock rises above the strike, your short call will be exercised.

There is also ex-dividend assignment risk: (short shares) : short ITM call whose corresponding put value is  < the dividend.

 If assigned on (unwanted) short shares: using the further-dated long call to cover the assignment would require establishing a short stock position for 1 business day.

The short call can be assigned at the ex-dividend date in the event the short call is ITM, and its corresponding put value < the dividend. This results in (probably unwanted) stock: in that case close the 100 short shares and a long call as a single Covered Call order.

The risk of early assignment is a real risk that must be considered when entering into positions involving short options.

While the long call in a bull call spread has no risk of early assignment, the short call does have such risk. Early assignment of stock options is generally related to dividends, and short calls that are assigned early are generally assigned on the day before the ex-dividend date. In-the-money calls whose time value is less than the dividend have a high likelihood of being assigned.

Therefore, if the stock price is above the strike price of the short call in a bull call spread (the higher strike price), an assessment must be made if an early assignment is likely. If the assignment is deemed likely and if a short stock position is not wanted, then appropriate action must be taken. Before assignment occurs, the risk of assignment can be eliminated in two ways:

  1. The entire spread can be closed by selling the long call to close and buying the short call to close.
  2. The short call can be purchased to close, and the long call can be kept open.

If early assignment of a short call does occur, stock is sold. If no stock is owned to deliver, then a short stock position is created. If a short stock position is not wanted, it can be closed by either buying stock in the marketplace or by exercising the long call.

Note, however, that whichever method is chosen, the date of the stock purchase will be one day later than the date of the stock sale. This difference will result in additional fees, including interest charges and commissions. Assignment of a short call might also trigger a margin call if there is not sufficient account equity to support the short stock position.

Source: Fidelity Learning Centre

The long call can be ‘exercised’. For this, you need to contact your broker.