Calendar Spread
Writing an option in a nearer expiry and buying the same strike in a further expiry, or the equivalent in futures.
Formula
Net Debit = Far Expiry Premium - Near Expiry Premium, at the same strike
Unit
₹
In depth
The position exploits the fact that time decay accelerates as expiry approaches, so the written near-dated option loses value faster than the purchased far-dated one. It profits when the underlying stays near the strike through the near expiry and loses when it moves far in either direction, which makes it a position on stillness rather than direction. It also carries positive vega, so a rise in implied volatility helps it — the opposite of most written-premium structures. Because both legs are in the same underlying, SPAN recognises the offset and the margin required is far below that of either leg alone.
Worked example
Write a 24,000 call expiring in 7 days at 300 and buy the 24,000 call expiring in 35 days at 520: net debit 220, or ₹16,500 per lot. If the index sits at 24,000 at the near expiry, the written leg expires worthless and the far leg retains most of its value.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Calendar Spread” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.