What is a calendar call spread?

A Calendar Call spread is an options strategy where two calls are traded on the same underlying and the same strike, one long and one short. The only thing that separates them is their expiry date. A long Calendar Call consists of selling a shorter-term call option and buying a longer-term call option, shown below.

What is double calendar spread & reverse calendar spread?

Double Calendar Spread – It involves buying future months’ call and put options and selling near-month calls and puts with the same strike price. Reverse Calendar Spread – It acts reversely, wherein the traders take an opposite position. They sell a longer-term option and buy a short-term option on the same underlying security.

How does a calendar spread profit?

A calendar spread profits from the time decay of options. The trader buys a longer-term option and sells a shorter-term option with the same strike price. The idea is that the shorter-term option will expire worthless, while the longer-term option will retain more value due to its longer time until expiration.

Do long call calendar spreads require a debit at entry?

Long call calendar spreads will require paying a debit at entry. The initial cost is the maximum risk for the trade if the short call option is in-the-money and/or both options are closed at the front-month expiration.