The Calendar Spread strategy

A calendar spread (time or horizontal spread) sells a near-expiry option and buys a far-expiry option at the same strike. It profits from the faster time decay of the short, near-term leg while the long, far-term leg holds its value better.

How it works

You pay a net debit. The position benefits when the underlying stays near the strike (so the short leg decays) and from rising implied volatility (which lifts the longer-dated long leg). It can be built with calls, puts, or both.

Risks

A large directional move hurts both legs unevenly, and falling volatility works against the long leg. Calendars are sensitive to volatility, so they suit views on time decay and IV rather than pure direction.