Definition
Calendar Spread (Futures)
A futures calendar spread buys one expiry and sells another of the same underlying to trade the spread, not direction.
You go long one month and short another month of the same future — for example long the next-month Nifty future and short the current-month one. Your profit or loss depends on how the price difference between the two months changes, not on the overall market direction.
NSE offers reduced margins for recognised calendar spreads because the two legs largely offset, making them capital-efficient. Traders use them to play changes in the cost of carry or to roll positions smoothly across expiry, and the spread is the building block of rollover activity.
Related terms
- Rollover CostRollover cost is the price difference paid to shift a futures position from the near month to the far month.
- SPAN MarginSPAN margin is the core risk-based margin for F&O positions, calculated by simulating worst-case price and volatility moves.
- Cost of CarryCost of carry is the net cost of holding an asset to a future date, comprising financing cost less any income, and it determines the fair-value difference between a futures price and the underlying spot price.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.