Put Calendar Spread
Sell a short-term put and buy a longer-term put at the same strike. Profit from time decay differences between expirations.
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What is a Put Calendar Spread?
A put calendar spread is the put version of the calendar strategy. You sell a short-term put and buy a longer-term put at the same strike price. The trade profits from the front-month put decaying faster than the back-month put. Like the call calendar, the ideal outcome is the stock staying near the strike at front-month expiration.
Put calendars can be advantageous over call calendars when put skew makes the pricing more favorable, or when you want a slightly bearish lean to your neutral trade.
How to Set It Up
- Sell 1 put at the near-term expiration
- Buy 1 put at a later expiration at the same strike
- Same strike price for both options
- Strike selection: ATM or slightly OTM. Choose the strike where you expect the stock to be at front-month expiration.
- Expiration gap: Front month 20-30 days, back month 50-90 days. The wider the gap, the more the trade costs but the more forgiving it is.
You pay a net debit equal to the difference between the two put prices.
When to Use This Strategy
Use a put calendar spread when:
- You expect the stock to stay near the strike price short-term
- Put premiums are richer than call premiums due to skew
- You want a neutral-to-slightly-bearish time decay trade
- IV is expected to rise or stay elevated in the back month
- You want defined risk with a favorable probability
Put calendars are particularly useful on indices and ETFs where put skew is steep. The puts tend to hold more value, which can make the back-month option more valuable relative to the front month.
Example Trade
Stock XYZ is trading at $100. You expect it to stay near $100.
- Sell 1 XYZ $100 put expiring in 30 days for $3.20
- Buy 1 XYZ $100 put expiring in 60 days for $4.80
- Net debit: $4.80 - $3.20 = $1.60 ($160 total)
If XYZ stays at $100 at front-month expiration: The short put expires worthless. The long put has 30 days left and is worth approximately $3.20-$3.60. Sell it for a profit of roughly $160-$200.
If XYZ drops to $90: Both puts are ITM. The time spread between them compresses. You may break even or take a small loss because intrinsic value dominates and the time value difference shrinks.
If XYZ rallies to $110: Both puts are OTM and losing value. The short put expires worthless, but the long put is also worth very little. You lose most of the $160.
Risk and Reward
- Max profit: Occurs when the stock is at the strike at front-month expiration. Exact amount depends on the remaining time value of the back-month put.
- Max loss: Net debit paid. $160. Occurs when the stock moves far from the strike in either direction.
- Breakeven: Approximately the strike plus and minus the debit, depending on back-month option pricing.
The profit profile is a bell curve centered at the strike price, similar to the call calendar.
Tips and Common Mistakes
- Compare pricing to the call calendar. Use whichever version gives you a better debit for the same strike and expirations.
- Watch for early assignment on short puts. Deep ITM short puts can be assigned early.
- Close the entire position at front-month expiration. Do not hold the back-month put alone without a plan.
- Earnings between expirations can help or hurt. An IV spike in the back month helps; an IV crush hurts.
Related Strategies
- Call Calendar Spread — same concept using calls
- Double Calendar — two calendars at different strikes
- Put Diagonal Spread — calendar with different strikes for directional bias
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