A ‘Time Spread,’ also called a Calendar Spread or a Horizontal Spread, involves the use of multiple options of the same type (either all calls or all puts), with the same strike price but different expiration dates.

Generally traders will sell a near-term option (take a short position) and buy a far-term option (take a long position). The strategy is virtually identical whether calls or puts are used.

A calendar spread is considered long if the trader buys the far-term option and sells the near-term option; it is considered a short calendar spread if the trader sells the far-term position and is long the near-term option. If there is more implied volatility for the near-term option, it can be sold for a higher premium than the longer-term option is purchased for.

This allows the investor to capitalize on the time decay of the near-term and to reduce (or neutralize) the cost of holding the long position.If the short position is exercised and needs to be covered, the long position, since it has the same strike price, can be used to buy the underlying stock to cover the short call.

In that case, your only loss would be any difference in the premium collected vs paid for the options. The maximum profit in a long calendar spread is unlimited, once the short position has expired.