Horizontal spread

A horizontal spread combines a long option and a short option of the same type — both calls or both puts — on the same underlying security, using the same strike price but different expiration dates. It is also called a calendar spread or time spread, because time to expiration is the only variable that differs between the two legs.

For example, buying one XYZ July 50 call and selling one XYZ April 50 call creates a horizontal spread. The strikes match, so the position's value depends on how the two contracts age relative to each other. Options lose time value faster as expiration approaches, so the short April contract decays more quickly than the long July contract. If the stock sits near 50 through April, the short leg expires worthless while the long leg retains value.

Spreads are named by what differs between the legs. If the strike prices differ but the expirations match, the position is a vertical spread. If only the expirations differ, it is horizontal. If both the strikes and the expirations differ, it is a diagonal spread. Every spread is also either a debit spread (you pay more for the long leg than you receive for the short leg) or a credit spread (the reverse).

The Series 7 and Series 9 exams both test spread naming directly — expect questions that give you two contracts and ask you to classify the position, or that ask which spread type profits from time decay. Memorize the naming logic first: same expiration means vertical, same strike means horizontal, neither means diagonal.