Long Put Calendar Spread Options Strategy

Submitted by admin on Fri, 11/26/2021 - 18:25

This approach mixes a pessimistic long-term prognosis with a neutral/bullish near-term outlook.

To enter a long put calendar spread, an investor sells one near-term put option and purchases a longer-term put option.

The approach is most frequently used with identical strike puts (horizontal spread), although it may also be used with various strike puts (diagonal spread).


The investor is seeking for either a steady to slightly rising stock price throughout the life of the near-term option and subsequently a decline over the life of the long-term option, or a sudden increase in implied volatility levels.


This approach mixes a pessimistic long-term prognosis with a neutral/bullish near-term outlook.

If the underlying stock remains stable or increases throughout the duration of the near-term option, it will expire worthless, leaving the holder with the longer-term option.
If both options have the same strike price, the technique will always require you to pay a premium to enter the trade.



  • Short 1 AAPL near 160 put
  • Long 1 AAPL far 160 put



Net premium paid on the strike price


Premiums paid in full


The investor is betting that the proceeds from the selling of the near-term put will cover the cost of acquiring a longer-term put.


The technique outlined here is a horizontal spread between two puts with the same strike price but different expiration dates.
A diagonal spread, on the other hand, would have a somewhat different profit/loss profile, as it would involve two puts with separate strikes and expirations.
However, the fundamental notions would remain applicable.

Maximum Loss

The largest loss would occur if the two alternatives equaled one another.
This may occur if the underlying stock increased sufficiently to render both options worthless, or if the price sank sufficiently to render both options deep in the money and trading at their intrinsic value.
In either event, the premium paid to establish the position would be lost.

Maximum Gain

At the time of the near-term option's expiration, the maximum profit would occur if the underlying stock was trading at the expiring option's strike price.
If the stock were to fall more, the expiring option would have inherent value, while the longer-term option would lose value.
After the near-term option expires worthless, the investor is left with just a long put, whose profit potential is limited only by the stock's inability to fall below zero.


The potential profit is restricted during the life of the near-term option to the degree that the near-term option's value drops more rapidly than the longer-term option.
Once the near-term option expires, the strategy devolves into a long put with a substantial profit potential.
Losses are restricted to the premium paid to open the position.


Due to the fact that the options have varying times to expiry, the point at which the strategy breaks even is a function of the underlying stock price, implied volatility, and time decay rates.
Should the near-term option expire worthless, breakeven would occur if the stock fell below the strike price by the premium paid.
However, it might occur at any time if the position is closed for a credit equal to the debit paid to commence the position.


Increased implied volatility, all other factors being equal, would be tremendously beneficial to this approach.
Longer-term options, in general, are more sensitive to fluctuations in market volatility, i.e., have a larger Vega.
Bear in mind, however, that near- and long-term options may trade at very different implied volatility levels.

Time Deterioration

In the beginning, the passage of time would have a beneficial effect on this technique.
That changes, however, after the near-term option expires and the strategy transforms into a long put whose value is reduced over time.
In general, the rate of time decay of an option rises as the expiry date approaches.

Assignment Danger

While early assignment is conceivable at any time, it is often reserved for puts that are deep in the money.
Should the longer-term option be exercised early, funding a long stock position for one business day would be required to cover the assignment.

Additionally, bear in mind that a circumstance in which a stock is involved in a restructuring or capitalization event, such as a merger, takeover, spin-off, or special dividend, may radically deviate from usual expectations for early exercise of stock options.

Risk of Expiration

If the near-term put option (the short side of the spread) is executed before it expires, the longer-term put option serves as a hedge.
However, assignment of the near-term put would result in the investor taking a long position in the underlying stock.

If the longer-term put is carried to expiration, it may be automatically exercised if it is in the money.


Due to the difference in the time remaining to expiry of these two put options, their Theta, Delta, and Gamma values are different.
Clearly, the near-term put is more susceptible to temporal decay, i.e., has a larger Theta.
While the near-term put frequently has a smaller Delta, it may have a greater Gamma (if the strike is at-the-money).
This means that if the stock falls significantly, the near-term put becomes much more price sensitive and approaches the value of the more costly longer-term put.
A frequent variation on this technique is to write another short-term option each time the preceding one expires, until the underlying stock makes a substantial move or the longer-term put nears expiration.