Why Calendar Spreads Do Not Guarantee Time-Value Roll Yield
Summary
The document considers whether selling a near-dated call and buying a later-dated call at the same strike can earn time-value roll yield while hedging the underlying. This position is a calendar spread. The two options can have different deltas, particularly when the strike is away from the money, so the position does not provide a complete hedge against price movements.
The replies caution that calendar spreads are not profitable in all conditions. The difference in extrinsic value across expiries does not automatically create a repeatable profit, and opportunities may already be reflected in market prices. Changes in implied volatility can affect the spread's value, but they are uncertain and cannot be assumed to generate gains. The discussion offers no systematic backtest, pricing framework, or trade-management rules; it presents the structure and its main risks rather than a complete strategy.
Key ideas
- Selling a near expiry option and buying a later expiry option at the same strike forms a calendar spread.
- Different deltas across expiries mean the spread is not fully hedged against underlying price moves.
- Calendar spreads do not guarantee profit from the passage of time.
- Implied volatility changes can affect spread value, but gains from them are uncertain.
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# Roll Yield on Options? # Roll Yield on Options? I have only recently started looking into options trading, so the question may come off as ignorant. My thought was that for an underlying security that has no special event like earnings. Could we construct a pair of option trades to obtain roll yield on time value? A simple case: In November, sell a call option expiring in December and buy another call option expiring in January next year, both at the same strike price. Would this allow me to extract the time value while hedging against price movement? ## Answer by Lliane (score 2, accepted) https://quant.stackexchange.com/a/31185 What you describe is called a calendar spread, however as the deltas of the two options will differ when they are not at the money, thus you are not really hedging against price movement. Calendar spreads have been discussed extensively here and elsewhere Why a calendar spread is a preferred strategy in a low volatility period How to manage risk on a call calendar when underlying is falling http://www.optionseducation.org/strategies_advanced_concepts/strategies/long_call_calendar_spread.html ## Answer by Fuce (score 1) https://quant.stackexchange.com/a/37520 This is an example of a Calendar Spread like the above comment mentioned. Calendar spreads are not profitable under all circumstances. Even when it is profitable it is hard to capture the profit as everyone else would try to do so and the profit opportunities evaporates before you and I can get in to a trade. For instance, as of this writing, the extrinsic value of a shorter term one month options are lower than one twelfth of the one year options. That way, you don't make money on the above trade(s). The only difference is if the implied volatility changes and gives a profit that way but don't always count on such changes which may not come.
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