Bear Calendar Spread Strategy
1. Definition
The bear calendar spread strategy is a type of options trading strategy. It involves simultaneously buying a put option with a later expiration date and selling a put option with an earlier expiration date at the same strike price and quantity.
2. How It Profits
In the options trading market, the closer an option is to its expiration date, the greater the impact of time on price movement. Generally, the value of a short-dated option sold by a trader will decline faster than the value of a longer-dated option held by the trader (time decay), allowing the trader to profit from this difference. This relationship remains unchanged provided there are no significant changes in other external factors such as spot price, implied volatility, and time value.
Additionally, in general, volatility tends to rise over longer time horizons and decline over shorter time horizons. Changes in volatility across different expiration dates can lead to mispricing, which is broadly understood as the term structure of volatility: pricing varies based on volatility changes across different expiration dates for options on the same asset. This is also the traders' room for profit.
For buyers of the bear calendar spread strategy, under normal circumstances, traders will close their position when the short leg expires to mitigate the impact of approaching expiration and potential volatility from term structure changes. If the trade remains open until the long leg expires, the bear calendar spread strategy will automatically transform into a bear strategy, meaning the trader only expects to profit from price changes.
From the perspective of sellers of the bear calendar spread strategy, they may believe that forecasts on the volatility term structure are an overreaction. Traders can obtain higher premiums by selling this strategy but also face the risk that market movements go against their expectations.
Theoretically, under the influence of the term structure or volatility, there is no upper limit on the maximum returns or losses for this strategy.
These underlying principles are essentially the same as those of the bull calendar spread strategy.
3. Trading Details
The following conditions must be met to execute this strategy:
1) The two legs must have the same quantity, i.e.:
Buy 1 in-the-money put option (Leg 1)
Sell 1 in-the-money put option (Leg 2)
2) The two legs must have the same strike price but different expiration dates
Tip 1: Margin Rules
Long position: Must meet the initial margin and maintenance margin rate requirements for the short call option (Leg 2)
Short position: Must meet the initial margin and maintenance margin rate requirements for the short put option (Leg 1)
Portfolio margin mode: Since Leg 1 and Leg 2 are correlated, some risks are offset, and margin requirements are reduced
Tip 2: Net Strategy Value
Long position: Leg 1 premium (ask price) (later expiration) – Leg 2 premium (bid price) (earlier expiration)
Short position: Leg 2 premium (ask price) (earlier expiration) - Leg 1 premium (bid price) (later expiration)
Tip 3: Returns Curve
4. Trading Example
Assume in a trade executing this strategy, the trading details are as shown in the table below:
Then, there will be three scenarios —
Scenario 1 (In-the-money scenario):
BTC price on Leg 2 expiration date: $18,000 USD, then:
Under normal circumstances, traders close their positions as expected when the short leg expires, so on Leg 2 expiration date:
Total loss: Net strategy value + (strike price 2 – price 2 at expiration) – Leg 1 premium at Leg 2 expiration
Scenario 2 (No price movement):
BTC price on Leg 2 expiration date: $20,000 USD, then:
Since both legs are at-the-money (ATM), a loss on the net strategy value will occur. Traders typically close their positions at Leg 2 expiration, i.e.:
Total returns: Leg 1 premium at Leg 2 expiration – net strategy value
(Leg 1 premium at Leg 2 expiration: Leg 1 original price – Leg 1 time decay)
In this case, we assume all other indicators of Leg 1 remain largely unchanged and are greater than (not guaranteed) the premium of Leg 2. Traders can capture the spread caused by time decay between Leg 1 and Leg 2, thereby profiting from it.
Scenario 3 (Worst-case scenario):
When Leg 2 expires, the short leg is in-the-money (ITM) and the long leg is out-of-the-money (OTM)
BTC price on Leg 1 expiration date: $25,000 USD (price 1 at expiration)
BTC price on Leg 2 expiration date: $15,000 USD (price 2 at expiration), then:
Under normal circumstances, traders close their positions as expected when the short leg expires, so on Leg 2 expiration date:
Total loss: Net strategy value + (strike price 2 – price 2 at expiration) – Leg 1 premium at Leg 2 expiration
Disclaimer
This article may contain product-related content not applicable to your region. This article is intended solely to provide general information and makes no representation as to any factual errors or omissions. The views expressed herein are solely those of the author and do not represent the views of OKX. This article is not intended to provide any advice, including but not limited to: (i) investment advice or investment recommendations; (ii) offers or solicitations to buy, sell, or hold digital assets; or (iii) financial, accounting, legal, or tax advice. Holding digital assets (including stablecoins) involves a high degree of risk, may be subject to significant volatility, and may even become worthless. You should carefully consider whether trading or holding digital assets is suitable for you based on your financial situation. For questions regarding your specific circumstances, please consult your legal/tax/investment professional. The information contained herein (including market data and statistics, if any) is provided for general reference purposes only. While reasonable precautions have been taken in preparing such data and charts, we assume no liability for any factual errors or omissions expressed herein. © 2025 OKX. This article may be reproduced or distributed in its entirety, or excerpts of 100 words or less may be used, provided that such use is non-commercial in nature. Any reproduction or distribution of the full article must prominently state: "© 2025 OKX. Used by permission." Permitted excerpts must cite the article title and include attribution, e.g., "Article title, [author name if applicable], © 2025 OKX". Some content may have been generated or assisted by artificial intelligence (AI) tools. Derivative works and other uses of this article are not permitted.
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