Definition
Time Spread
A time spread is another name for a calendar spread — trading the same strike across two different expiries.
Also called a horizontal spread, the time spread sells a near-term option and buys a longer-term option at the same strike, profiting from the faster decay of the front leg if the underlying stays near the strike. Its value also rises if implied volatility increases, thanks to the longer leg's higher vega.
Indian traders use time spreads on Nifty and stocks when they expect short-term calm but want a longer position or a volatility bet. The position is sensitive to the IV difference between the two expiries, which can help or hurt independently of the underlying's move.
Related terms
- VegaVega measures how much an option's premium changes when implied volatility rises or falls by 1%.
- Calendar Spread (Options)A calendar spread sells a near-term option and buys a longer-term option at the same strike to profit from time decay and volatility.
- Diagonal SpreadA diagonal spread combines different strikes and different expiries, blending the features of a vertical and a calendar spread.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.