Options 101: The calendar

The calendar or time spread is a position with options in two different expiration months, with both options being calls or puts. Both calls or puts will have the same strike price. Calendars involve buying an option in one expiration month and selling an option in another option with a different expiration. A long calendar is buying an option in the back month and selling an option in the front month. A short calendar is selling an option in the back month and buying an option in the front month.

Calendars maximize their value when the stock is at the strike price of the options, and the front month option is expiring. Calendars have their minimum value when the stock is very far away from the stock price of the options. Therefore, if you buy a calendar, you want the underlying stock price to be at the strike price at expiration. If you sell a calendar, you want the underlying stock price to be as far away as possible from the strike price at expiration.

The delta and gamma of a calendar depends on where the underlying stock price is relative to the strike price of the options.

Similar to calendars, a time spread with different exercise prices is a diagonal spread.