Double Calendar
A Double Calendar is a neutral options strategy that uses two calendar spreads — one with calls and one with puts at different strikes — to create a wider profit tent than a single calendar, profiting from time decay and a decline in implied volatility while the underlying remains range-bound.
A single calendar spread involves buying an option in a far expiration and selling an option at the same strike in a near expiration, profiting as the near-term option decays faster. A double calendar extends this concept by adding a second calendar spread on the other side of the underlying price — one calendar centered around an out-of-the-money call strike and one centered around an out-of-the-money put strike.
This creates a position with two profit peaks and a wider zone of profitability than either calendar alone. The position profits when the underlying remains between the two calendar strikes and implied volatility stays steady or declines. The combined decay from two short near-term options provides robust theta income.
The double calendar differs from the double diagonal in that both sets of strikes match — the near-term and far-term options within each calendar spread share the same strike price. This means the long back-month options provide very specific protection at the short strike levels rather than wider protection at different strike levels.
Vega risk is the primary concern in a double calendar. Because both long back-month options contribute positive vega while both short front-month options contribute negative vega (though less per option), the net position is long vega. This means the position benefits from a rise in implied volatility — the back-month options appreciate more than the front-month options. However, if implied volatility collapses after the position is established, both spreads lose value even if the underlying stays in range.
Double calendars are most effective when implied volatility is low relative to historical averages and is expected to remain steady or increase. Initiating the trade before a known volatility event such as an earnings announcement, followed by rapid decay of the front-month options around the event, can be particularly profitable.
Risk management involves defining the breakeven boundaries of the position and exiting if the underlying moves beyond them. The position is also sensitive to changes in the term structure of implied volatility — if near-term options become more expensive relative to back-month options, the spread can suffer even without a move in the underlying.