Calendar

Long Call Calendar

A Long Call Calendar is done with the purchase of a further dated Call option and sale of a nearer dated Call option, both which have the same strike price.

Payoff Diagram:

Long Call Calendar Spread with OTM Calls

Direction Assumption: Neutral-Bullish

At Near-Dated Expiration,

Maximum Profit: Credit received from selling Call + Profit of Long Call Maximum profit at the near-dated expiration is realized when the underlying is at the near dated Short Call strike price. Maximum Loss: Unlimited

At Far-Dated Expiration,

Maximum Profit: Unlimited Maximum Loss: Limited to the debit paid for the Long Call. Maximum loss at the far-dated expiration is realized if the underlying moves below the Long Call strike price.

Breakeven Price at Far-Dated Expiration: Equal to the Long Call Strike Price + Premium paid

Theta: Passage of Time -> Positive Effect The net effect of time decay is positive. It will erode the value of the near dated Short Call faster than the far dated Long Call.

Volatility: Neutral

Reverse/ Short Call Calendar

A Short Call Calendar is done with the sale of a further dated Call option and purchase of a nearer dated Call option, both which have the same strike price.

Payoff Diagram:

Short Call Calendar Spread with OTM Calls

Direction Assumption: Neutral-Bearish

At Near-Dated Expiration,

Maximum Profit: Limited to debit paid Maximum Loss: Limited to the debit paid for the near dated Long Call + Time decay of far-dated Short Call Maximum loss at the near-dated expiration is realized when the underlying is at the near dated Long Call strike price. At Far-Dated Expiration,

Maximum Profit: Limited to credit received from the further dated Short Call Maximum Loss: Unlimited

Breakeven Price at Far-Dated Expiration: Equal to the Short Call Strike Price + Short Call credit received

Theta: Passage of Time -> Negative Effect The net effect of time decay is negative. It will erode the value of the near dated Long Call faster than the far dated Short Call.

Volatility: Neutral

Long Put Calendar

A Long Put Calendar is done with the purchase of a further dated Put option and sale of a nearer dated Put option, both which have the same strike price.

Payoff Diagram:

Long Put Calendar Spread with OTM Puts

Direction Assumption: Neutral-Bearish

At Near-Dated Expiration,

Maximum Profit: Credit received from selling Put + Profit of Long Put Maximum profit at the near-dated expiration is realized when the underlying is at the Short Put strike price. Maximum Loss at Near-Dated Expiration:: Unlimited

At Far-Dated Expiration,

Maximum Profit: Unlimited Maximum Loss: Limited to the debit paid for the Long Put. Maximum loss at the far-dated expiration is realized if the underlying moves below the Long Put strike price.

Breakeven Price at Far-Dated Expiration: Equal to the Long Put Strike Price + Premium paid

Theta: Passage of Time -> Positive Effect The net effect of time decay is positive. It will erode the value of the near dated Short Put in a bigger extent than the far dated Long Put.

Volatility: Positive Effect

Reverse/ Short Put Calendar

A Short Put Calendar is done with the sale of a further dated Put option and purchase of a nearer dated Put option, both which have the same strike price.

Payoff Diagram:

Short Put Calendar Spread with OTM Puts

Direction Assumption: Neutral-Bullish

At Near-Dated Expiration,

Maximum Profit: Limited to debit paid Maximum Loss: Limited to the debit paid for the near dated Long Put + Time decay of far-dated Short Put Maximum loss at the near-dated expiration is realized when the underlying is at the near dated Long Put strike price. At Far-Dated Expiration,

Maximum Profit: Limited to credit received from the further dated Short Put Maximum Loss: Unlimited

Breakeven Price at Far-Dated Expiration: Equal to the Short Put Strike Price - Short Put credit received

Theta: Passage of Time -> Negative Effect The net effect of time decay is negative. It will erode the value of the near dated Long Put faster than the far dated Short Put.

Volatility: Neutral