Time value spreads also are known as calendar or horizontal (time horizon) spreads. Time spreads in futures contracts occur when you spread off one futures month against another. Long time value spreads in options occur when you go long an option in a deferred expiration cycle while simultaneously going short another option of the same strike in a more nearby expiration cycle. Why are they called time value spreads? Let's look at the Google (GOOG) October weekly, October 577.50 call spread with GOOG at $577.70 for the week ending Sept. 26. The offer for the GOOG Oct (W) calls is $16.50. The bid for the Oct 577.50 calls is $13.90. The expiration value for both calls is 20c. Every option of the same strike price will have the same expiration value regardless of when the expiration cycle expires. The expiration value is the in-the-money portion of the premium. It's the differential in the respective time values that create the spread.
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