A Long Call Calendar Spread involves buying a long-term call option and selling a short-term call option at the same strike price. It profits from time decay and minimal price movement in the short term.
- Ideal for neutral to slightly bullish conditions, where minimal price movement is expected in the short term.
- Buying the longer expiry ATM call ensures long-term exposure, while selling the shorter expiry ATM call generates premium income.
- Risk is limited to the net cost of the strategy, with profits maximized near the strike price at the short-term expiry.
Example:
- NIFTY trading at 18,000.
- Buy 18,000 Call (next month expiry) at ₹300 and sell 18,000 Call (current month expiry) at ₹150 (lot size = 50).
- Outcome:
- If NIFTY stays near 18,000 at short-term expiry:
- The short-term call expires worthless.
- Net profit = ₹7,500 (premium collected).
- If NIFTY rises to 18,400 at short-term expiry:
- Loss on the short-term call = ₹20,000.
- Gain on the long-term call = ₹20,000.
- Net profit = ₹0.
- If NIFTY falls significantly:
- Both options lose value, but the long-term call retains time value.
- Net loss = ₹7,500 (net premium).