Let’s move into practical territory and unpack calendar spread examples. Before we jump in, remember that the ideal route for capital efficiency is selling a short-term option and buying the longer-term option on the same strike. This way you’d benefit from the low capital requirement of the calendar spread strategy.
LONG CALL CALENDAR SPREAD EXAMPLE
Suppose you’re neutral but mildly bullish on Company XYZ. You enter a long calendar spread with calls when shares of the stock are trading at $50.00 – you buy a 55 call with 90 days to expiration (DTE) and sell a 55 call that expires in 45 days.
You pay a premium of $5.00 for the long position and receive a premium of $3.00 for the short call, giving you a net premium (debit) of $2.00. This would be $200.00 in total as one options contract represents 100 shares – $200.00 would also be the maximum possible loss for your calendar spread.
Fast-forward 45 days, the short option expires worthless when the underlying’s price increases to $53.00. Since the short call position is bearish, and the new market price is below the strike price, this option expires OTM.
In this case, if the long option is worth more than $2.00, you’d see a profit on your overall position, since you paid $2.00 upfront for the calendar spread. If the remaining long $55.00 call, that still has 45 DTE is worth $3.00, you’d have a net profit of $1.00, or $100.00 in real-dollar terms. You paid $200.00 for the calendar spread, the short call expired worthless, and now your long call that remains is worth $300.00.
LONG PUT CALENDAR SPREAD EXAMPLE
In a long put calendar spread, you’d also have two positions with the same strike price: sell the front-month option with 30 to 45 DTE, and buy the back-month option, with 60 to 90 days to expiration. The net premium would be a debit, just like in long call calendar spreads.
Suppose you’re neutral, but mildly bearish on Company XYZ. You enter a long calendar spread with puts when its shares are trading at $100.00 – you buy a 95-strike put with 90 DTE and sell a 95-strike put that expires in 45 days.
You pay a premium of $9.00 for the long put position and receive a premium of $4.00 for the short put, giving you a net premium (debit) of $5.00. This would be $500.00 in total as one options contract represents 100 shares – $500.00 would also be the maximum possible loss for your calendar spread.
The short option expires worthless (in 45 days) when the underlying’s price drops to $96.00. Since the short put position is bullish, and the new market price is above the strike price, this option expires OTM and worthless.
In this case, if the long option is still worth $7.00, you’d see a profit on your overall position, since you paid $5.00 upfront for the calendar spread. If the remaining long 95 strike put (that still has 45 DTE) is worth $7.00, you’d have a net profit of $2.00, or $200.00 in real-dollar terms. You paid $500.00 for the calendar spread, the short put expired worthless, and now your long put that remains is worth $700.00.
