Option Strategies
Long Call Calendar Spread
Introduction
Long call calendar spread, also known as call horizontal spread, is a combination of a longer-term (far-leg/front-month) call and a shorter-term (near-leg/back-month) call, where all calls have the same underlying stock and the same strike price. The long call calendar spread consists of buying a longer-term call and selling a shorter-term call. This strategy profits from a decrease in the underlying price. It also profits from the time decay value because the theta θ (the Option price decay by 1 day closer to maturity) of the shorter-term call is larger than longer-term call.
Implementation
Follow these steps to implement the long call calendar spread strategy:
- In the
initialize
method, set the start date, end date, cash, and Option universe. - In the
on_data
method, select the strike price and expiration dates of the contracts in the strategy legs. - In the
on_data
method, select the contracts and place the orders.
def initialize(self) -> None: self.set_start_date(2017, 2, 1) self.set_end_date(2017, 2, 19) self.set_cash(500000) self.universe_settings.asynchronous = True option = self.add_option("GOOG", Resolution.MINUTE) self._symbol = option.symbol option.set_filter(lambda universe: universe.include_weeklys().call_calendar_spread(0, 30, 60))
The call_calendar_spread
filter narrows the universe down to just the two contracts you need to form a long call calendar spread.
def on_data(self, slice: Slice) -> None: if self.portfolio.invested: return # Get the OptionChain chain = slice.option_chains.get(self._symbol, None) if not chain: return # Get the ATM strike atm_strike = sorted(chain, key=lambda x: abs(x.strike - chain.underlying.price))[0].strike # Select the ATM call Option contracts calls = [i for i in chain if i.strike == atm_strike and i.right == OptionRight.CALL] if len(calls) == 0: return # Select the near and far expiry dates expiries = sorted([x.expiry for x in calls]) near_expiry = expiries[0] far_expiry = expiries[-1]
Approach A: Call the OptionStrategies.call_calendar_spread
method with the details of each leg and then pass the result to the buy
method.
option_strategy = OptionStrategies.call_calendar_spread(self._symbol, atm_strike, near_expiry, far_expiry) self.buy(option_strategy, 1)
Approach B: Create a list of Leg
objects and then call the combo_market_order, combo_limit_order, or combo_leg_limit_order method.
near_expiry_call = [x for x in calls if x.expiry == near_expiry][0] far_expiry_call = [x for x in calls if x.expiry == far_expiry][0] legs = [ Leg.create(near_expiry_call.symbol, -1), Leg.create(far_expiry_call.symbol, 1) ] self.combo_market_order(legs, 1)
Strategy Payoff
The long call calendar spread is a limited-reward-limited-risk strategy. The payoff at the shorter-term expiration is
Cshort-termT=(ST−K)+PT=(Clong-termT−Cshort-termT+Cshort-term0−Clong-term0)×m−feeThe following chart shows the payoff at expiration:

The maximum profit is undetermined because it depends on the underlying volatility. It occurs when ST=S0 and the spread of the calls are at their maximum.
The maximum loss is the net debit paid, Cshort-term0−Clong-term0. It occurs when the underlying price moves very deep ITM or OTM so the values of both calls are close to zero.
If the Option is American Option, there is a risk of early assignment on the contract you sell. If the buyer exercises the call you sell, you could lose all the debit you received if you don't close the long call and the underlying price drops below the long call strike price.
Example
The following table shows the price details of the assets in the long call calendar spread:
Asset | Price ($) | Strike ($) |
---|---|---|
Longer-term call at the start of the trade | 4.40 | 835.00 |
Shorter-term call at the start of the trade | 36.80 | 767.50 |
Longer-term call at time T | 31.35 | 835.00 |
Underlying Equity at time T | 829.08 | - |
Therefore, the payoff at time T (the expiration of the short-term call) is
Cshort-termT=(ST−K)+=(828.07−800.00)+=28.07PT=(Clong-termT−Cshort-termT+Cshort-term0−Clong-term0)×m−fee=(31.35−28.07+11.30−20.00)×100−1.00×2=−544So, the strategy loses $544.
The following algorithm implements a long call calendar spread Option strategy:
class LongCallCalendarSpreadStrategy(QCAlgorithm): def initialize(self) -> None: self.set_start_date(2017, 2, 1) self.set_end_date(2017, 2, 19) self.set_cash(500000) option = self.add_option("GOOG", Resolution.MINUTE) self.symbol = option.symbol option.set_filter(self.universe_func) def universe_func(self, universe: OptionFilterUniverse) -> OptionFilterUniverse: return universe.include_weeklys().call_calendar_spread(0, 30, 60) def on_data(self, data: Slice) -> None: # avoid extra orders if self.portfolio.invested: return # Get the OptionChain of the self.symbol chain = data.option_chains.get(self.symbol, None) if not chain: return # get at-the-money strike atm_strike = sorted(chain, key=lambda x: abs(x.strike - chain.underlying.price))[0].strike # filter the call options from the contracts which is ATM in the option chain. calls = [i for i in chain if i.strike == atm_strike and i.right == OptionRight.CALL] if len(calls) == 0: return # sorted the optionchain by expiration date expiries = sorted([x.expiry for x in calls], key = lambda x: x) # select the farest expiry as far-leg expiry, and the nearest expiry as near-leg expiry near_expiry = expiries[0] far_expiry = expiries[-1] option_strategy = OptionStrategies.call_calendar_spread(self.symbol, atm_strike, near_expiry, far_expiry) # We open a position with 1 unit of the option strategy self.buy(option_strategy, 1) # self.sell(option_strategy, 1) if short call calendar spread
Other Examples
For more examples, see the following algorithms: