Calendar & diagonal spreads
What is a Calendar Spread (Time Spread) and how does it exploit the difference in Theta decay between expirations?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A Calendar (Time) Spread sells a near-term option and buys a longer-term option at the same strike, profiting from the front-month option decaying (theta) faster than the back-month option.
How it works
Because near-term options lose time value more rapidly as expiration approaches, the spread gains value from this differential decay rate, especially if the underlying stays near the strike.
An example
Sell a 30-day 100 call and buy a 60-day 100 call for a net debit; the position profits if the stock stays near 100 as the short call decays faster.
Risk & limitations
Calendar spreads are vulnerable to large price moves away from the strike and to shifts in the term structure of implied volatility, which can reduce the strategy's expected edge.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.