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Calendar Spread

FOMC is in 5 days. The market is pricing the event into near-term options. 7-day IV on BTC is 72%, but 30-day IV is only 54%. You think the event passes without drama. You want to sell the near-term vol spike and own the cheaper far-term vol. A calendar spread does exactly this.

Same strike, different expiries. Sell the expensive near-term option. Buy the cheaper far-term option. You profit when the near-term option decays faster than the far-term one, and that differential is driven by the term structure, not just time.

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A calendar spread is a term structure trade, not a direction bet. You're trading the shape of the vol curve, not the price of BTC.

What You Do​

The SetupYou pay premium
Sell1 near-term option at strike K
Buy1 far-term option at same strike K
Max Profit
Near short strike
Max Loss
Net debit
Best Outcome
Pin at K at near expiry
Margin
Net debit + venue rules

How the P&L Works​

This is where calendars get tricky. Unlike verticals or condors, the payoff at the near-term expiry depends on what happens to IV across the entire term structure. The chart below is an approximation. Real P&L moves with the vol surface.

  1. At the strike. Best outcome at near-term expiry. The short option expires worthless. The long option retains significant time value and whatever IV is baked into it. You sell the long option for a profit.
  2. Near the strike. Partial profit. The spread has positive value because the far-term option retains more time value than the near-term option costs to settle.
  3. Far from the strike. The spread collapses. Both options are deep ITM or deep OTM. The time value difference between them vanishes. You lose most or all of the debit.
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The payoff chart below shows an approximation at near-term expiry. The actual P&L depends on what happens to IV across the term structure. If far-term IV rises, you benefit. If it collapses too, you lose. Calendar spreads are more complex than they look on a static chart.

Worked Example​

BTC at 94,700. FOMC in 4 days. The 7-day 95k straddle is trading at 68% IV. The 28-day 95k straddle is at 51% IV. That 17-point inversion is screaming "sell the front, buy the back."

Sell 7-day 95k call for 3,200. Buy 28-day 95k call for 5,800. Net debit: 2,600.

BTC at Near Expiry
Short Call Value
Long Call Value (approx)
Est. P&L
$85,000
$0
~$800
-$1,800
$90,000
$0
~$2,200
-$400
$93,000
$0
~$3,400
+$800
$95,000
$0
~$4,600
+$2,000
$97,000
-$2,000
~$5,200
+$600
$102,000
-$7,000
~$8,500
-$1,100
$110,000
-$15,000
~$15,800
-$1,800

Best case: BTC pins near 95k through FOMC, the front-month option expires worthless, and the back-month option is still worth 4,600+. You sell it and pocket 2,000.

When to Use​

  • Event-driven term structure trades. FOMC, CPI, ETF decisions, protocol upgrades. Near-term IV pumps. Far-term doesn't. Sell the event, own the aftermath.
  • You expect the underlying to stay near the strike through the near-term expiry
  • You expect far-term IV to hold or rise while near-term IV collapses post-event
  • You want vega exposure without paying for a straddle's gamma risk
Common Mistakes
The mistakeIgnoring far-term IV risk.
The realityYou're long the far-term option. If far-term IV drops 10 points after you put the trade on -- maybe the event resolves AND macro vol resets lower -- your long option loses value from vega and theta simultaneously. The calendar can lose money even if the short leg expires worthless.
The mistakeAssuming the payoff chart is exact.
The realityCalendar payoff diagrams are approximations that assume far-term IV stays constant. They never do. The real P&L depends on the entire vol surface shifting. A calendar is a vol surface trade disguised as a simple two-leg structure.
The mistakePutting on a calendar and forgetting about it.
The realityCalendars need monitoring. If spot moves away from the strike, the trade dies slowly. If near-term IV drops but far-term drops more, you lose. If the short leg gets tested and goes ITM, you need to manage it before expiry. These are not set-and-forget trades.
The mistakeUsing calendars in a flat term structure.
The realityIf near-term and far-term IV are similar, there's no edge to harvest. Calendars work when the term structure is steep or inverted -- when there's a differential to exploit. In a flat curve, you're just paying the debit for theta and hoping.

Greeks at a Glance​

Greek
Sign
Plain English
Delta
~0
Roughly neutral near the strike. Both legs have similar delta, they offset.
Gamma
-
The near-term short option has more gamma than the far-term long. You want the underlying to stay put.
Theta
+
Near-term option decays faster than far-term. This differential is your edge.
Vega
+
Net long vega. The far-term option has more vega than the near-term. Rising IV across the curve helps you.

The calendar is the rare trade that's both long vega and long theta. That's unusual. Most structures force you to choose. The trick is that you're long vega on the far-term option (which has more vega per unit) while being short theta on the near-term option (which has more theta per unit). Two different time horizons, two different Greek profiles.

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