Lesson

Calendar & diagonal timing | Options Educator

Pair expirations to harness time decay and directional bias.

In this lesson

Calendar & Diagonal Spreads

  • A long calendar sells the near-dated option and buys the far-dated one at the same strike; a diagonal changes the strike too
  • In the example you sell the 30-day $100 call for $3.43 and buy the 90-day $100 call for $5.94, a debit of $2.51
  • Risk is defined by the debit paid, so the most you can lose is $2.51 a share, $251 a contract

How to Pick Expirations

  • Sell the short leg at 20 to 45 days and buy the long leg at 60 to 120 days
  • At the short expiration the example makes $2.34 at $100 and loses $2.04 at $85 and $1.70 at $115
  • The profit zone is a tent around the strike, so calendars like a quiet stock

Managing Calendars and Diagonals

  • With the stock at the strike, the spread's value climbs from $2.51 to $4.85 over the 30 days, mostly at the end
  • Rolling the short leg sells another round of premium: two $3.43 short calls total $6.86 against $5.94 paid for the long call
  • The risks are a big move, a fall in back-month volatility and early assignment of the short call

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