Option Strategies
Short Call Calendar Spread
Introduction
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 short call calendar spread consists of selling a longer-term call and buying a shorter-term call. The strategy profits from from an increase in the underlying price.
Implementation
Follow these steps to implement the short 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 short 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.short_call_calendar_spread
method with the details of each leg and then pass the result to the buy
method.
option_strategy = OptionStrategies.short_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 short call calendar spread is a limited-reward-limited-risk strategy. The payoff at the shorter-term expiration is
Cshort-termT=(ST−K)+PT=(Cshort-termT−Clong-termT+Clong-term0−Cshort-term0)×m−fee whereCshort-termT=Shorter term call value at time TClong-termT=Longer term call value at time TST=Underlying asset price at time TK=Strike pricePT=Payout total at time TCshort-term0=Shorter term call value at position opening (debit paid)Clong-term0=Longer term call value at position opening (credit received)m=Contract multiplierT=Time of shorter term call expirationThe following chart shows the payoff at expiration:

The maximum profit is the net credit received, Clong-term0−Cshort-term0. It occurs when the underlying price moves very deep ITM or OTM so the values of both calls are close to zero.
The maximum loss is undetermined because it depends on the underlying volatility. It occurs when ST=S0 and the spread of the 2 calls are at their maximum.
If the Option is American Option, there is a risk of early assignment on the contract you sell. If you don't close the call positions together, the naked short call will have unlimited drawdown risk after the long call expires.
Example
The following table shows the price details of the assets in the short 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=540So, the strategy gains $540.
The following algorithm implements a short 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.short_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)
Other Examples
For more examples, see the following algorithms: