A calendar spread that involves the purchase of an option with a longer expiration and the sale of an option with the same strike price and a shorter expiration. For example, the stock of XYZ company is trading at $50 in April. An investor may establish a long calendar spread by buying XYZ July 50 calls and selling XYZ June 50 calls. However, putting on this trade comes at a cost. Assuming the June and July calls cost $5 and $6.5 respectively, the cost (spread value) of this position is, then, $1.5. The calendar spread would pay off if the time decay of the near-month option occurs at a faster rate than that of the far-month option.

If the underlying price remains relatively unchanged as the near-month expiration approaches, the calendar spread should increase in value. Assume the investor is now in May (i.e., one month before the June expiration), the market price of the underlying option might be $2 and $4 respectively. As a result, the cost of the long calendar spread is now $2.

Generally speaking, a long calendar spread is ideally the most rewarding when the underlying price remains roughly stagnant between the time of trade and the time at which the position is closed out. Upside or downside swings would have an adverse impact on the extrinsic values of the options involved.