Definition
A calendar spread — also called a horizontal spread or time spread — buys a longer-dated option and sells a shorter-dated option at the same strike price. Both legs are typically the same type (both calls or both puts); the only difference between them is expiration date. The trade is opened for a net debit because the longer-dated option has more time value than the shorter-dated one.
The structural edge of the calendar is the theta differential: near-term options decay much faster than longer-dated options. While the short front-month option bleeds time value rapidly, the long back-month option loses time value gradually. The spread captures the difference — collecting the front-month decay while preserving most of the back-month premium.
The maximum profit occurs when the underlying sits at or very near the strike price as the front-month option expires. At that moment the short option is worthless (no intrinsic value, no time value), but the long back-month option still carries substantial premium. The trader can either close the position, or sell another front-month option against the surviving long — effectively "rolling" the spread forward and harvesting decay again.