Calendar Spreads: Gamma, Theta, and Earnings Volatility

Summary

The answer considers whether option positions can combine long gamma with short volatility, or short gamma with long volatility. It argues that a short-dated long straddle against a longer-dated short straddle does not provide the proposed combination, and says a calendar spread does not achieve it either. The central distinction is that calendars and collars can be long gamma while short theta; gamma exposure does not by itself determine theta or vega exposure.

The response suggests calendars may be attractive in low implied-volatility settings when volatility is not expected to rise against the short side, including around earnings. Before an event, a calendar may benefit if short-dated implied volatility falls more than longer-dated volatility after the announcement. This is a qualitative trade rationale, not a general pricing result or a fully specified strategy. It gives no strikes, maturities, risk limits, or performance evidence, and outcomes depend on the volatility term structure and the event’s effect on each option.

Key ideas

• A calendar spread does not automatically combine long gamma with short volatility.
• Calendars and collars may be long gamma while carrying negative theta exposure.
• A calendar around earnings can be considered when short-dated implied volatility is expected to fall more than longer-dated volatility.
• The proposed rationale depends on volatility expectations and does not guarantee a profitable outcome.

Tags

# Are there trades that long gamma (convexity) and short volatility at the same time?


# Are there trades that long gamma (convexity) and short volatility at the same time?












Likewise, are there trades that short gamma and long volatility at the same time?

Under fixed income context, are there trades that short convexity and long volatility at the same time?

## Answer by Dr. Michael J. Stefano (score 1)

https://quant.stackexchange.com/a/85334

i cant find a set up like this. it does not work for short dated long straddle with a longer dated short straddle. if that were the case it would work for a short calendar spread and it doesnt work there either. however, calendars and collars are long gamma and short theta, and in low IV environments where vega is not expected to rise against the short side, say after earnings, that could be good. even though the calendar is not net positive vega, even when the term structure is in contango, it will be net + theta. also pre earnings this could work, as the IV crush in the short dated option of the calendar will be much more than in a longer dated option 4-6 months out) whose IV will not change nearly as much as the short dated one post earnings.

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