A Put Calendar Spread is a strategy that involves selling a near-term put option and buying a longer-term put at the same strike price.
It’s a time-based strategy that profits from relative time decay (theta) and volatility differences.
How It Works
Sell 1 near-term put
Buy 1 longer-term put at the same strike
If the underlying remains stable, the short put expires worthless while the longer-term put retains value.
Profit and Loss Profile
Maximum Profit: Typically if the underlying is around the strike at short expiration and the long put retains value. Profit is limited by the long put value minus net premium.
Maximum Loss: Limited to the net premium paid.
Breakeven: Determined by the net premium and volatility movement; outcomes depend on how the underlying moves across expiries.
Why Traders Use It
To monetize faster theta on the short leg while keeping a longer-duration hedge.
To benefit from an expected short-term calm and potential longer-term downside protection.
To play the term structure of implied volatility (front-month vs. back-month).