Call calendar

Summary

A call calendar sells a call that ends soon and buys the same $100 call that ends later, for when you expect XYZ to sit still near $100. In the XYZ example it costs $144; the most you can make is about $201 if XYZ sits at $100 on day 30, and the worst case is losing the $144 on a big move either way. On day 30 you break even between $95.03 and $105.60, but those figures are model estimates that change with volatility.

Key terms

call calendar

Selling a call that ends soon and buying the same-strike call that ends later, which gains most if the stock sits at the strike.

calendar spread

Selling a near-dated option and buying a later one at the same strike, a bet on time.

near expiry

far expiry

debit spread

A spread you pay to open.

time value

The rest of an option's price, paid for the chance things get better before the end, and gone by the last day.

tent

The curved, peaked shape of a calendar or short straddle on its key date.

volatility

The size of the swings a stock is expected to make, written as a yearly percentage, saying how far but not which way.

model estimate

A value worked out by the pricing model, such as a calendar's day-30 result, that changes when volatility changes.

assignment

When a buyer exercises and you, as the seller of that option, must deliver.