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There are countless strategies in the trading world. While some are simple, others are a bit more advanced. Choosing the right strategy depends on what the market is doing and what you expect next. If you are looking for a strategy that can be implemented when the market is not moving much, then you have come to the right place. In this article, we will understand what the Long Call Calendar Spread or Long Calendar Spread with Calls is and how you can benefit from it.
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What is a Long Call Calendar Spread?
A Long Call Calendar Spread is a neutral-to-moderately-bullish options strategy that involves buying and selling call options with the same strike price but different expiration dates. Specifically, the trader buys a long-dated call option and simultaneously sells a short-dated call option, both at the same strike price.
The objective of this strategy is to benefit from time decay (theta) on the short-dated option while maintaining exposure to the longer-dated position. It is typically used when the trader expects the underlying asset’s price to remain near the strike price of the options in the near term.
The spread is established for a net debit, since the long-dated option is more expensive than the short-dated one. The potential profit arises if the stock remains close to the strike price as the short call expires worthless or with minimal value, while the long call retains time value.
How is a Long Call Calendar Spread Constructed?
To build a Long Call Calendar Spread, a trader performs the following steps:
- Buy a Call Option with a longer expiration date (example, 30 days out)
- Sell a Call Option with a shorter expiration date (example, 7 days out)
- Both options must have the same strike price
How Does a Long Call Calendar Spread Work?
The strategy benefits primarily from time decay (theta) of the short-term option and, in some cases, from increases in implied volatility (vega) of the longer-dated option.
If the price of the underlying asset stays near the chosen strike price by the short option's expiration, the short call will lose value quickly, possibly expiring worthless. Meanwhile, the long call will retain its value due to the additional time until expiration.
Once the short call expires, the trader has the flexibility to:
- Close the entire position
- Sell another short-term call (rolling the spread)
- Hold the long call if directional movement is expected
Example of a Long Call Calendar Spread
Let’s assume a stock is trading at ₹100, and you believe it will stay around ₹105 over the next few weeks. You could set up a Long Call Calendar Spread as follows:
| Action |
Option Type |
Strike Price |
Premium Collected / Paid |
| Buy |
Call Option (1-month) |
₹105 |
₹5 (Paid) |
| Sell |
Call Option (1-week) |
₹105 |
₹2 (Collected) |
Net Debit (Total Cost) = ₹5 - ₹2 = ₹3 per lot
The maximum loss is limited to the net debit paid, i.e., ₹3 per lot.
Breakeven and Profit/Loss Scenarios
Maximum Profit occurs if the underlying stock price is at or very near the strike price at the time of the short call’s expiration. This is because:
- The short-term call expires worthless or with minimal value (you keep the premium),
- The long-term call retains most of its time value and possibly gains intrinsic value if the stock moves slightly upward after short expiry.
Maximum Loss is limited to the net debit paid (₹3 in the example), which occurs if the stock price moves sharply away from the strike price in either direction. In this case:
- The short-term call may gain value (if upward move is sharp), and the long call may not gain enough to offset the loss,
- Or both options lose value due to the stock being too far OTM.
Breakeven is not a fixed price like in vertical spreads. However, profit typically occurs when the stock expires close to the strike price at the short option’s expiry. If it moves too far above or below, you may incur a partial or full loss depending on how both options react.
When Should Investors Consider Using a Long Call Calendar Spread?
The Long Call Calendar Spread is suitable under the following market conditions:
- Low to Moderate Volatility: Ideal when price movement is expected to be limited in the short term.
- Neutral to Slightly Bullish Bias: Works best if the trader expects the price to stay near the strike or move modestly higher.
- Favorable Time Decay Setup: When short-term options are losing value faster than long-term ones, creating an opportunity to profit.
Wrapping Up
The Long Call Calendar Spread is an effective time-based strategy that allows traders to benefit from the rapid time decay of short-term options while holding a longer-term position. It offers a defined risk setup and can be adjusted or rolled as needed. For traders expecting low volatility or minor price movements, this strategy can be a valuable addition to their options toolkit.
