Horizontal Spreads in Australia: 2025 Guide for Smart Options Trading

In the fast-evolving world of options trading, horizontal spreads—sometimes called calendar spreads—are gaining momentum among savvy Australian investors. With the ASX embracing more advanced derivatives and 2025’s market volatility pushing traders to seek new ways to profit, understanding horizontal spreads could set you apart from the crowd.

What Is a Horizontal Spread?

A horizontal spread is an options strategy involving the purchase and sale of two options of the same type (both calls or both puts) and the same strike price, but with different expiration dates. Unlike vertical spreads (which differ by strike price), horizontal spreads differ by time—hence the alternative name, ‘calendar spread.’

For example, an investor might:

• Buy a BHP June 2025 call option (longer expiry)

• Sell a BHP April 2025 call option (shorter expiry)

This approach lets traders benefit from time decay (theta) and differing volatility expectations, making it a staple for those seeking income or hedging opportunities in 2025’s unpredictable markets.

Why Horizontal Spreads Are Trending in 2025

Several trends are fuelling renewed interest in horizontal spreads among Australian investors:

• ASX options market expansion: The ASX has broadened its suite of weekly and monthly options, offering more expiry choices and greater flexibility for calendar-based strategies.

• Market volatility: 2025 has seen continued swings in commodity prices, tech stocks, and the AUD, making time-based strategies like horizontal spreads attractive for those looking to profit from volatility changes or to hedge existing positions.

• Tax efficiency: Many investors use spreads to manage capital gains timing, aligning with the ATO’s updated 2025 guidance on derivatives reporting and wash sale rules.

Importantly, horizontal spreads can be structured for limited risk and can be tailored for both bullish and neutral market outlooks—a crucial advantage when direction is unclear but volatility is expected to shift.

How Do Horizontal Spreads Work in Practice?

Let’s break down how a horizontal spread might play out for an Australian investor in 2025:

• Suppose you’re bullish on CSL Limited, but expect only moderate price movement in the next month. You might:

• Buy a CSL August 2025 call option (more expensive, more time value)

• Sell a CSL July 2025 call option (cheaper, less time value)

The goal: as the July option approaches expiry, time decay accelerates, eroding its value faster than the August option. If CSL’s share price remains near the strike, the short option expires with little value, leaving you holding the longer-dated call—which can then be sold, held, or managed further.

Key factors influencing results:

• Implied volatility: If volatility rises after you enter the spread, the value of the longer-dated option typically increases, boosting your position.

• Time decay (theta): The nearer-term option loses value faster, especially as expiry approaches.

• Price movement: The spread works best if the underlying share stays close to the strike price until the short option expires.

Example: In March 2025, an investor bought a Fortescue Metals (FMG) June call for $3.20 and sold an April call for $1.10, both at a $25 strike. As FMG shares hovered around $25 in April, the short option expired nearly worthless. The investor then sold the June call for $3.50, netting a tidy profit from time decay and a minor uptick in volatility.

Risks, Rewards, and What to Watch in 2025

Like all options strategies, horizontal spreads aren’t risk-free. If the underlying share price moves sharply away from the strike, the strategy can lose money. Early assignment risk is low in Australian cash-settled options, but it’s still possible, especially around ex-dividend dates or if deep in-the-money.

In 2025, investors should also be mindful of:

• Regulatory updates: The ASX and ASIC have issued new guidelines on derivatives disclosures and margin requirements. Always check current policy before trading.

• Taxation: The ATO’s 2025 changes clarify how spreads are reported, with a focus on capital versus income treatment for active traders.

• Liquidity: Not all shares or expiries have robust options markets. Stick to liquid names to avoid wide bid-ask spreads.

Conclusion

Horizontal spreads are a powerful addition to the modern Australian investor’s toolkit—especially in the nuanced market conditions of 2025. Whether you’re seeking income, hedging risk, or simply looking to take advantage of time and volatility, mastering this strategy can open up new ways to profit and manage exposure. As always, staying on top of market, regulatory, and tax changes is key to getting the most out of your trades.