Call calendar spread trading is an options trading strategy that seeks to lock in gains from the changing prices over time of two options contracts with different expiry dates. Call calendar spreads are formed when a trader buys or sells a longer-dated call contract and takes the opposite position in a shorter-dated contract with the same strike price at the same time. Call calendar spreads are sometimes known as time-spreads or horizontal spreads. They become more lucrative as expiration approaches because of the time decay from both option contracts.
In this article, we introduce the call calendar spread and explain when using the strategy might be advantageous. We then cover the strategy’s risks and demonstrate how to trade horizontal spreads across different OKX products.
TL;DR
Call calendar spreads are multi-leg option strategies that are risk-defined and benefit from time decay.
Call calendar spreads involve shorting and longing call options with the same strike price but different expiration dates.
Monitoring of the spread is required in times of volatility as you repair the trade and roll options when needed.
Call calendar spreads can be risky for beginners since they're multi-leg option strategies that require simultaneous opening and closing of positions.
What is a call calendar spread?
As an options trading strategy, it’s essential to understand how options contracts work before continuing with this guide or attempting to place a call calendar spread. If you’re unfamiliar with options trading, check out this dedicated guide.
Call calendar spread trading is the simultaneous buying and selling of an equal quantity of call options contracts with the same underlying asset, same strike price but different expiry dates. When buying a call calendar spread, the trader will sell a shorter-term call contract and buy a longer-term contract. When selling a call calendar spread, the trader will buy a shorter-term options contract and sell a longer-term contract. Both buying and selling horizontal call spreads create “market neutral” positions.
When buying or selling a call calendar spread, the trader pays the mark price for the long (bought) contract but receives the mark price for the short (sold) one. The difference between the two prices is the cost to enter the trade — also known as a “debit.”
The strategy revolves around the concept of “time decay.” Options contract prices are influenced by their term length. A shorter-term contract’s premium will typically be lower than a longer-term contract because the latter contract has a longer window in which the price can move into the money.
As an options contract’s expiry approaches, an out-of-the-money option’s mark price reduces due to this dwindling likelihood of profitability for its buyer. When buying the horizontal spread, the spot price at the near-term contract’s expiry will ideally be at or below the strike price, meaning that it expires worthless. The trader can then sell the longer-term contract or leave it open in the hope of a price rally, potentially resulting in a profit. The opposite is true when selling a call calendar spread.
Call calendar spread components
The key characteristics of a call calendar spread trade are as follows.
Must comprise of exactly two positions of equal contract quantity and strike price.
Long and short call positions must share the same underlying asset.
Market neutral in nature.
Both call contracts must have different expiry dates.
Call calendar spread example: how to execute a call calendar spread strategy
To further understand how buying a call calendar spread works, let’s consider the strategy with a few different outcomes. We'll be using Bitcoin options for this reference example.
Analysis wise, BTC spot pair is trading close to its recent all-time high of $93,263. With its last-traded price of $89,000, Bitcoin seems to be trading within the range of $85,000 and $93,000. As traders continue to remain optimistic off the previously formed golden cross on the daily chart, the RSI indicator remains at an overbought level of 76. Given this context, crypto option traders can choose to execute a call calendar spread with the belief that Bitcoin prices are likely to trade at this level for the time being before a further breakout beyond the channel. To help you along, let's cover the planning and execution of the call calendar spread using BTC options so you're aware of the mechanics involved.
Given the bullish outlook of the crypto market so far, a strike price that's slightly below the current price at $85,000 could be a good starting point for the call contracts. To begin executing the call calendar spread strategy, you'd need to concurrently buy a longer-term call option that's expiring on December 27, 2024 and sell a shorter-term call option that's expiring on November 29, 2024. Keep in mind that both call contracts will have the same $85,000 strike price. By doing so, you’d make trading gains from the time decay of the shorter-term option while maintaining a slightly bullish position on Bitcoin.
If done successfully, a net debit of 0.0345 BTC in funds will be deducted from your trading account per call calendar spread that you're executing given that the November BTC call option credits you with 0.0765 BTC while the December BTC call option subtracts 0.111 BTC from your balance. In an ideal scenario, Bitcoin prices will continue to hover around this range throughout November 2024 and suddenly break out in a bullish Santa rally towards the year-end festive period. This would ultimately provide call calendar spread traders with the maximum gains since the November BTC call expires worthless while the December BTC call is likely to expire ITM.
On the contrary, maximum losses involved with this trade may include the net debit paid upfront, which in this case is 0.0345 BTC per spread. This loss occurs if Bitcoin's price either falls significantly below the $85,000 strike or rises sharply beyond the range before the November option expires. In such scenarios, the shorter-term call option would either fail to generate sufficient time decay or incur higher costs to close due to adverse price movements, while the longer-term call might not gain enough intrinsic value to offset the initial debit.
Risk-reward considerations of executing a call calendar spread
A key advantage of the call calendar spread is its defined risk. Since the maximum loss is capped at the net debit paid, crypto option traders won’t be subjected to unlimited losses. Price movements aside, traders must also account for implied volatility. If implied volatility decreases significantly during the holding period, the value of both options could erode, potentially reducing the gains involved or amplifying losses. Conversely, an increase in implied volatility generally benefits the longer-term option more, enhancing how lucrative the call calendar spread could potentially be.
Monitoring and adjustments of the call calendar spread
Throughout the trade, careful monitoring of Bitcoin's price and volatility is crucial. If Bitcoin approaches or breaches $93,000 before the November expiration, you may consider rolling the shorter-term call option to a later expiration or a higher strike to preserve how lucrative the strategy is. Additionally, any unexpected drops below $85,000 might prompt an early exit to limit further losses.
All in all, this strategy works best in scenarios where the underlying asset's price remains near the strike price of the options at the shorter-term expiration. For Bitcoin traders expecting stable prices in the short term followed by a potential breakout later, the call calendar spread offers an excellent balance of risk and reward. We'll explain why many crypto option traders tend to favor a call calendar spread in the following section.
Why trade a call calendar spread?
Call calendar spreads are popular because they offer a way to limit risk in a market while benefiting from potentially unlimited upside. If both contracts expire worthless, the maximum loss is the debit paid to enter the trade.
Meanwhile, the slower relative price decay of the longer-term call provides a means of making gains even when the market stays flat. If the price does increase throughout the longer-term contract, potential gains also grow while risk remains limited to the debit — providing the trader closes the longer-term contract at the near-term expiry.
The strategy is also attractive when underlying price volatility is low. With low price volatility, the difference between the near- and longer-term mark prices will be narrow, meaning the debit (or cost to enter the trade) will be low.
In the typically volatile cryptocurrency markets, there’s a strong chance that volatility will increase, which will have an outsized impact on the mark price of the longer-term contract. Options’ mark prices usually increase during periods of heightened volatility because the chance they’ll expire in the money also grows when prices move faster over a short period. Simply put, buyers are willing to pay more for a call, and sellers demand a higher premium to account for the higher risk they are taking on.
Call calendar spread risks
When both legs of a calendar spread are entered simultaneously, and the trader closes the longer-term call at the near-term expiry, the strategy’s risk is limited to the cost of the debit. However, if the trader doesn’t sell the longer-term call at near-term expiry, there are scenarios where losses can extend beyond the debit.
Execution risk is also a factor when trading any multi-leg strategy. If attempting to make two simultaneous trades manually, there's a chance that one leg fills at the price you wanted and the second doesn't. This is particularly risky when selling options contracts, which is required to enter a call calendar spread. Since selling a naked call has unlimited downside potential for the trader, we don't recommend attempting to do so manually.
Fortunately, the OKX Liquid Marketplace provides various advanced tools like our sophisticated block trading platform to ensure execution risk is avoided entirely.
Getting started with call calendar spreads on OKX
OKX provides various tools for trading multiple options strategies, including call calendar spreads. While you can enter call calendar spreads manually, we don’t recommend inexperienced traders attempt it. The main issue with doing so is execution risk. If only one leg of the trade fills, the position isn’t market neutral. This is particularly risky if only the short side of your call calendar spread executes because losses are potentially infinite when selling options contracts.
Try out block trading
OKX’s powerful block trading platform provides various predefined strategies, enabling you to enter multiple multi-leg positions while avoiding execution risk. We’ve prepared an extensive guide to getting started with block trading. If you’re new to the feature, we recommend starting with this tutorial to familiarize yourself with the platform and its functions.
To set up a call calendar spread, select the underlying crypto you want to trade using the highlighted menu from the “Predefined strategies” section. Next, click Calendar and then Call Calendar Spread.
Two call option trade legs will appear in the RFQ Builder. First, select each leg’s expiry and strike price. Then, enter the amount you want to trade. You can also change whether the leg is a buy or sell using the green 'B' and red 'S' buttons.
With reference to our earlier example, we'll start by requesting quotes for the BTCUSD 241227 call and the BTCUSD 241129 call, each with a strike price of $85,000. We’re buying the spread, so we'll sell the near-term and buy the longer-dated contract.
Next, select the desired counterparties from which you want to receive quotes.
After you’ve checked all your trade details, click Send RFQ.On the RFQ Board, you’ll see quotations from the counterparties you chose under the “Bid” and “Ask” columns. The figures shown are price differences for buying and selling your chosen instruments. The creation time, time remaining before your quotes expire, the position’s status and quantity, and the counterparty making the quote are also shown.
Click Buy to buy the spread or Sell to sell the spread.
Check your trade details in the confirmation window. Then, click Confirm Buy or Confirm Sell. If you need to make any changes to your orders, click Cancel. The beauty of OKX’s block trading platform is that both legs will fill simultaneously, eliminating any potential execution risk.
After completing your trade, your position will appear at the bottom of the RFQ Board in the “History” section. It will stay there for one week, after which you can find it by clicking view more.
A call calendar spread is a multi-leg strategy requiring action on your behalf after placing your order. You might wish to exit either position before or at the near-term contract’s expiry. To do so, find your open positions in the trade history section of “Margin Trading.” You can then close either position with a limit or market order and lock in your gains if Bitcoin prices move as expected.
Final words and next steps
The call calendar spread is a powerful trading strategy that lets you take advantage of an options contract’s natural price reduction as expiration approaches. By taking opposite positions in the same market, you can easily manage risk while still having the potential to take full advantage of crypto’s notorious price volatility. When managed correctly, your downside is limited to the debit in premiums. Conversely, if the market moves particularly favorably, you can lock in outsized gains. As our examples demonstrate, you can even make gains when the market barely moves at all.
Although some crypto option traders may be intimidated by multi-leg options trading strategies, the method can be learned with some practice and knowhow. This barrier to entry is further lowered thanks to OKX’s powerful tools and features found on our Liquid Marketplace, where you can effortlessly trade the potentially lucrative call calendar spread strategy with low execution risk.
For more on option strategies, read our guides to covered calls and cash-secured puts that will get you started with crypto option strategies.
FAQs
Call calendar spreads are market neutral option strategies that rely on the impact of time decay and implied volatility.
Call calendar spread can be executed by buying a longer-term call contract and selling a shorter-term call contract with the same strike price.
Your losses are limited to the debit in premiums paid regardless of whether you execute a bullish or bearish call calendar spread.
They typically involve the debit cost involved with the long call option and the margin required on the short call option.
If you liken the longer-term call option of the call calendar spread to the underlying asset of the covered call, then both strategies will essentially be the same since they share the same idea of riding out short-term volatility.
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