Commodities

Calendar Spread

The price difference between two futures contracts on the same commodity at different maturities — a direct measure of curve shape.

Definition

Calendar spreads (also 'time spreads' or 'horizontal spreads') express views on the slope of a futures curve without taking outright price risk. Long front / short back profits from steepening into backwardation; short front / long back profits from flattening into contango.

In options, a calendar spread is long a later-dated option and short an earlier-dated option at the same strike — a play on term structure.

Why it matters

Calendar spreads isolate curve dynamics from spot direction, often providing better risk/reward than outright positions during transitions.

Worked example

Q4 2022: long Dec23/short Dec24 WTI calendar offered ~$8 backwardation. Holding into mid-2023 captured most of the convergence as the front contract rolled up.

Frequently asked

Why use spreads instead of outright?⌄

Lower margin requirements, lower outright price risk, and cleaner exposure to the specific curve dynamic.

What's a butterfly spread?⌄

Long one near contract, short two middle contracts, long one far contract — a play on the convexity of the curve.

Do calendars work in options?⌄

Yes — long calendars are long vega and theta-negative, useful when expecting curve flattening or pre-event vol expansion.

What's the main risk?⌄

Curve dislocations from supply shocks can move spreads against the trade even when spot direction is correct.

Related terms

Contango

Commodities

Backwardation

Commodities

Crack Spread

Commodities

Implied Volatility

Options

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