Investment Type: Credit
Strike Prices: OTM, both legs must have the same strike price
Expiration Month: current month for sold leg, later month for bought leg
Composition: Buy Call + Sell Call

Calendar Call is often called Horizontal Spread. It’s basically an alternative way of doing covered call. Instead of buying the stock, we buy the stock’s longer term Call Option while selling current month Call with the same strike price. This will significantly reduce our initial investment. Therefore, it can be said as a “covered call” with better yield and less expense.

However, Calendar Call can become loss making if the stock price rises up too fast too soon. The reason for this is because the premium for our long-term Call bought leg rises slower than our short-term sold leg (if our sold leg has become ITM) and it’s not “covered” as in Covered Call.

The best possible case is that if the stock’s price is at the strike price (of the sold leg) at the first expiration. While the worst will happen if the sold leg got assigned. When that happens, we have to buy the stock (which needs some more money), sell it back in the market and hope that the profit in the bought leg can offset the loss.