Can the later option be valued only at intrinsic when the short expires?
Reveal the worked answer
No.
It still has time remaining; use an appropriate valuation or executable quote.
Why do different expirations require a different valuation question?
Read first: Read the whole multi-leg ticket, Vega
A call calendar sells a near-term clock and buys a longer one at the same strike. It can express limited near-term movement while retaining later uncertainty. The trade is about relative value across time, not simply collecting fast decay.
Both options are 100 calls. Only expiration differs. Selling the earlier call offsets purchase cost while surrendering some near-term upside. If the strikes also differed, the structure would be a diagonal.
The short expires 2026-11-20, 45 days after entry. The long expires 2027-02-19, 136 days after entry. Opening example prices use 30% front IV and 25% back IV, continuous rate 3% and yield 1%. Ticket premiums are rounded to cents and those rounded values define opening cash.
A front-event IV decline and a back-expiry IV decline affect different rights. A single aggregate Vega cannot describe every nonparallel term-structure change. The future long-option mark also depends on remaining time, spot and the assumed volatility surface.
At the short expiry, the long option is still alive. Valuing both by intrinsic at that date deletes the very time value the calendar or diagonal purchased. The three curves therefore show alternative remaining-IV assumptions rather than one guaranteed payoff.
The demonstration uses European cash-settled valuation and assumes both legs are liquidated at the short-expiry observation. Real American equity options may be assigned earlier and create share obligations. A later option does not automatically settle an earlier assignment.
Choose a decision date before short expiry. Closing both, retaining a justified long or selling a newly evaluated short are separate choices. Repeated sales are new trades. A rapid rally can create short-call assignment risk before the planned date.
QLT • reference spot $100 • independent illustrative prices • quote date 2026-10-06
| Action | Qty | Type | Strike | Expiry | Premium/unit | Multiplier |
|---|---|---|---|---|---|---|
| BUY | 1 | Call | 100 | 2027-02-19 | 6.41 | 100 |
| SELL | 1 | Call | 100 | 2026-11-20 | 4.31 | 100 |
The short leg reaches intrinsic at the first expiry; the long leg remains live and is revalued under each stated IV assumption. A plotted peak is not an unconditional maximum profit.
$0.65 per option contract on entry only; later liquidation/assignment/funding costs excluded.
Original rounded BSM teaching premiums, not quotes. Curves are conditional liquidation at the first expiry: short intrinsic plus the still-live long option valued with a stated remaining IV. They are not a same-expiry payoff, unconditional maximum profit or American-exercise simulation.
Buy one 2027-02-19 100 call at 6.41; sell one 2026-11-20 100 call at 4.31. Both represent 100 units. Opening debit is $210.00 before the illustrative 1.30 entry fees.
At the short-expiry observation, keep stock at 100 and assume 25% IV for the remaining long. Price the long with 91 days left and subtract the short's intrinsic liability. After subtracting the original debit, modeled liquidation P/L is $310.40 before costs or $309.10 after entry fees only.
With stock unchanged but remaining IV at 18%, the result is $172.01. At 35% it is $507.93. The comparison isolates uncertainty still owned after the nearer clock ends. It does not establish a unique maximum profit or an executable fill. Exit fees, bid–ask costs and assignment can change the outcome.
Vertical: Modeled liquidation P/L per ticket (USD)
Horizontal: Underlying at the first expiry (USD)
| Underlying at the first expiry (USD) | Surviving-long IV 18% (before fees) | Surviving-long IV 25% (before fees) | Surviving-long IV 35% (before fees) |
|---|---|---|---|
| 75 | -209.825 | -205.641 | -176.522 |
| 75.5 | -209.77 | -204.903 | -173.261 |
| 76 | -209.7 | -204.06 | -169.753 |
| 76.5 | -209.612 | -203.1 | -165.984 |
| 77 | -209.5 | -202.011 | -161.943 |
| 77.5 | -209.361 | -200.779 | -157.616 |
| 78 | -209.188 | -199.391 | -152.991 |
| 78.5 | -208.973 | -197.831 | -148.055 |
| 79 | -208.71 | -196.082 | -142.795 |
| 79.5 | -208.389 | -194.129 | -137.198 |
| 80 | -207.998 | -191.954 | -131.25 |
| 80.5 | -207.526 | -189.537 | -124.941 |
| 81 | -206.96 | -186.861 | -118.255 |
| 81.5 | -206.283 | -183.904 | -111.182 |
| 82 | -205.478 | -180.648 | -103.708 |
| 82.5 | -204.527 | -177.069 | -95.8216 |
| 83 | -203.409 | -173.148 | -87.5102 |
| 83.5 | -202.099 | -168.861 | -78.7621 |
| 84 | -200.574 | -164.186 | -69.5658 |
| 84.5 | -198.806 | -159.101 | -59.9101 |
| 85 | -196.766 | -153.582 | -49.7842 |
| 85.5 | -194.423 | -147.607 | -39.1774 |
| 86 | -191.743 | -141.151 | -28.0796 |
| 86.5 | -188.693 | -134.194 | -16.4812 |
| 87 | -185.236 | -126.71 | -4.37267 |
| 87.5 | -181.333 | -118.678 | 8.25472 |
| 88 | -176.945 | -110.076 | 21.4094 |
| 88.5 | -172.032 | -100.881 | 35.0993 |
| 89 | -166.553 | -91.0736 | 49.3318 |
| 89.5 | -160.466 | -80.6319 | 64.1139 |
| 90 | -153.728 | -69.5366 | 79.4519 |
| 90.5 | -146.298 | -57.7688 | 95.3516 |
| 91 | -138.134 | -45.3105 | 111.818 |
| 91.5 | -129.194 | -32.1447 | 128.857 |
| 92 | -119.439 | -18.2555 | 146.472 |
| 92.5 | -108.829 | -3.62813 | 164.666 |
| 93 | -97.3281 | 11.7509 | 183.443 |
| 93.5 | -84.9001 | 27.8939 | 202.805 |
| 94 | -71.5123 | 44.8119 | 222.755 |
| 94.5 | -57.1341 | 62.5145 | 243.293 |
| 95 | -41.7377 | 81.0101 | 264.421 |
| 95.5 | -25.2984 | 100.305 | 286.138 |
| 96 | -7.79452 | 120.406 | 308.445 |
| 96.5 | 10.7922 | 141.316 | 331.341 |
| 97 | 30.4764 | 163.038 | 354.825 |
| 97.5 | 51.2696 | 185.574 | 378.894 |
| 98 | 73.1793 | 208.922 | 403.547 |
| 98.5 | 96.2095 | 233.083 | 428.781 |
| 99 | 120.361 | 258.052 | 454.592 |
| 99.5 | 145.629 | 283.826 | 480.978 |
| 100 | 172.009 | 310.399 | 507.933 |
| 100.5 | 149.49 | 287.765 | 485.454 |
| 101 | 128.059 | 265.916 | 463.536 |
| 101.5 | 107.7 | 244.843 | 442.172 |
| 102 | 88.3928 | 224.537 | 421.359 |
| 102.5 | 70.1163 | 204.985 | 401.089 |
| 103 | 52.8462 | 186.176 | 381.356 |
| 103.5 | 36.556 | 168.098 | 362.154 |
| 104 | 21.2174 | 150.737 | 343.475 |
| 104.5 | 6.80015 | 134.078 | 325.313 |
| 105 | -6.72723 | 118.107 | 307.661 |
| 105.5 | -19.3975 | 102.809 | 290.509 |
| 106 | -31.2444 | 88.1656 | 273.852 |
| 106.5 | -42.3023 | 74.1621 | 257.68 |
| 107 | -52.6061 | 60.7811 | 241.985 |
| 107.5 | -62.1911 | 48.0052 | 226.758 |
| 108 | -71.0924 | 35.817 | 211.992 |
| 108.5 | -79.3452 | 24.1987 | 197.678 |
| 109 | -86.9841 | 13.1325 | 183.806 |
| 109.5 | -94.0435 | 2.60019 | 170.368 |
| 110 | -100.557 | -7.41606 | 157.355 |
| 110.5 | -106.557 | -16.9343 | 144.758 |
| 111 | -112.077 | -25.9724 | 132.568 |
| 111.5 | -117.146 | -34.5482 | 120.775 |
| 112 | -121.795 | -42.6793 | 109.371 |
| 112.5 | -126.053 | -50.3832 | 98.3471 |
| 113 | -129.947 | -57.6772 | 87.6931 |
| 113.5 | -133.504 | -64.578 | 77.4005 |
| 114 | -136.748 | -71.1025 | 67.4602 |
| 114.5 | -139.704 | -77.2669 | 57.8631 |
| 115 | -142.394 | -83.0873 | 48.6005 |
| 115.5 | -144.839 | -88.5791 | 39.6634 |
| 116 | -147.06 | -93.7576 | 31.0431 |
| 116.5 | -149.075 | -98.6376 | 22.7307 |
| 117 | -150.901 | -103.233 | 14.7178 |
| 117.5 | -152.556 | -107.559 | 6.99576 |
| 118 | -154.054 | -111.628 | -0.443773 |
| 118.5 | -155.41 | -115.454 | -7.60909 |
| 119 | -156.636 | -119.048 | -14.5084 |
| 119.5 | -157.746 | -122.424 | -21.1496 |
| 120 | -158.749 | -125.593 | -27.5408 |
| 120.5 | -159.657 | -128.565 | -33.6897 |
| 121 | -160.478 | -131.353 | -39.6039 |
| 121.5 | -161.222 | -133.966 | -45.2909 |
| 122 | -161.895 | -136.415 | -50.758 |
| 122.5 | -162.507 | -138.708 | -56.0125 |
| 123 | -163.062 | -140.854 | -61.0614 |
| 123.5 | -163.567 | -142.864 | -65.9116 |
| 124 | -164.027 | -144.744 | -70.5699 |
| 124.5 | -164.448 | -146.502 | -75.0427 |
| 125 | -164.833 | -148.147 | -79.3367 |
A fast move away from the common strike can shrink the favorable time-value difference. Front-IV collapse does not guarantee profit if the back IV also falls. The long option does not automatically resolve assignment.
Try the question before revealing its answer. These are reading checks, not trading certification or a site completion record.
No.
It still has time remaining; use an appropriate valuation or executable quote.
No.
The curve depends on an assumed future IV and liquidation date.
Read every expiry, strike and volatility assumption. A calendar has matching strikes; a diagonal changes both strike and time.
External references support definitions and conventions. Worked scenarios and prose are original. No current quotes or dealer inventory are claimed.
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