Double Calendar Spread
Two calendar spreads at different strikes. A neutral strategy that creates a wider profit zone by combining two time spreads.
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What is a Double Calendar Spread?
A double calendar spread combines two calendar spreads at different strike prices. You sell a near-term put and call at different strikes, and buy a longer-term put and call at the same strikes. This creates two profit peaks — one at each strike — with a wider overall profit zone than a single calendar.
Think of it as the calendar version of an iron condor. Instead of selling spreads at two different strikes, you sell time at two different strikes. The trade profits when the stock stays between the two strikes or near either one.
How to Set It Up
- Sell 1 near-term put at the lower strike
- Buy 1 longer-term put at the same lower strike
- Sell 1 near-term call at the upper strike
- Buy 1 longer-term call at the same upper strike
- Same front-month expiration for the short options
- Same back-month expiration for the long options
- Strike selection: Place the strikes equidistant from the current price, typically one below and one above. Use 1 standard deviation as a guide.
- Expiration gap: Front month 20-30 days, back month 50-90 days.
The total debit is the sum of both calendar debits.
When to Use This Strategy
Use a double calendar when:
- You expect the stock to stay in a range but are not sure exactly where it will land
- You want a wider profit zone than a single calendar
- IV is expected to increase in the back month
- You want a neutral trade that benefits from time decay
- The stock is range-bound with elevated IV
Double calendars are excellent for earnings plays where you expect IV to spike in the back month after the front-month options expire. They also work well on stocks with predictable trading ranges.
Example Trade
Stock XYZ is trading at $100. You expect it to stay between $95 and $105.
- Sell 1 XYZ $95 put (30 days) for $1.80 / Buy 1 XYZ $95 put (60 days) for $2.80
- Sell 1 XYZ $105 call (30 days) for $1.60 / Buy 1 XYZ $105 call (60 days) for $2.60
- Lower calendar debit: $2.80 - $1.80 = $1.00
- Upper calendar debit: $2.60 - $1.60 = $1.00
- Total debit: $2.00 ($200 total)
If XYZ stays at $100 at front-month expiration: Both short options expire worthless. Both long options retain time value. The combined value of the long options might be $3.50-$4.00, giving a profit of $150-$200.
If XYZ sits at $95 or $105: One of the calendar spreads hits peak profitability while the other is near breakeven. Solid profit overall.
If XYZ moves to $80 or $120: Both calendars lose most of their value. You lose up to the $200 debit.
Risk and Reward
- Max profit: Occurs when the stock sits near one of the strikes at front-month expiration. The exact amount depends on back-month option values.
- Max loss: Net debit paid. $200 in our example.
- Breakeven: Approximately beyond the two strikes plus and minus the debit. The profit zone is the widest between the two strikes.
The double calendar has a wider profit zone than a single calendar but costs more to enter.
Tips and Common Mistakes
- Space the strikes appropriately. Too close and you are better off with a single calendar. Too far and the profit zone sags in the middle.
- IV changes affect both calendars. A drop in IV across all expirations hurts the trade.
- Close at front-month expiration. Sell the back-month options and close the entire position.
- Monitor each leg separately. If one side is threatened, you can close that calendar independently.
Related Strategies
- Call Calendar Spread — single calendar using calls
- Put Calendar Spread — single calendar using puts
- Double Diagonal — two diagonals at different strikes with directional bias
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