Horizontal Spread

A horizontal spread is an options position built by buying and selling two options of the same type (both calls or both puts) on the same underlying stock, with the same strike price, but with different expiration dates. Because the expirations are set apart while the strike stays fixed, the position looks "horizontal" if you picture strikes on a vertical axis and time running left to right on a chart of an option chain — hence the name. It's also commonly called a "calendar spread" or "time spread."

The typical setup is to sell the near-term option and buy a longer-dated option at the same strike. The trader collects premium from the option sold up front, while the option bought further out retains more time value and decays more slowly. The trade profits mainly from the faster time decay (theta) of the near-term option relative to the longer-dated one, and it tends to do best when the underlying stays close to the strike price through the near-term expiration.

The nuance that trips people up is that a horizontal spread isn't really a directional bet, even though it involves calls or puts that look directional. Its value is driven far more by the passage of time and by changes in implied volatility than by the stock making a big move. A large price swing away from the strike, in either direction, generally hurts the position because the short option loses its "sweet spot" value while the long option's edge over it shrinks or reverses.

It's also worth distinguishing from a vertical spread (same expiration, different strikes) and a diagonal spread (different strikes and different expirations). A horizontal spread is the one where the strike is held constant and only the calendar dates change.