Reverse Calendar Spread

A reverse calendar spread involves the opposite positions: Buy short-term option, Sell longer-term option.

Expectations:

Significant Move

Anticipate a substantial move in the underlying asset’s price.

Volatility Spike

Expect a spike in implied volatility, boosting the value of the short-term option.

The near-term option must surge in value quickly. The anticipated move must be significant enough to surpass the slower decay of the longer-term option.

Treat the reverse calendar as a trade you decline. Its edge case — front-month implied volatility about to explode relative to the back month — is a professional volatility desk’s market to read, and the structure’s endgame is ugly for everyone else: once your long front-month leg expires, what remains is a naked short option with months of life left on it. If you want to own a volatility spike, buy the front-month option outright and cap your loss at the premium.