If IV skew is flat (all strikes with the same IV ss ATM) as in the black-scholes world for all maturities, would calendar spreads be considered as pure arbitrage?

  • $\begingroup$ Can you still lose money? $\endgroup$
    – amdopt
    Sep 1 at 18:20
  • $\begingroup$ Certainly yes! If your long leg starts to lose IV. I figured out it still won't be a "arbitrage" $\endgroup$
    – smg_08
    Sep 2 at 4:21
  • 1
    $\begingroup$ My question was rhetorical. If losing is possible, then it's not a pure arb. $\endgroup$
    – amdopt
    Sep 2 at 11:11

1 Answer 1


In commodities, it's not necessarily arbitrage.

In the example of oil, if oil has a very low price for delivery in March and a very high price for delivery in April, you may in fact be able to lock in a profit by taking delivery of the oil in March, paying to store it until April, and then selling it in April. This is often formalized using the convenience yield.

An even more extreme example is electricity futures, where it's more difficult to store electricity delivered in one month for consumption in another month. Without diving into the modelling details, intuitively you can think of contracts that deliver in two different months as being fundamentally not that closely linked, and in particular, there isn't any reason why convergence should occur even if both have the same implied vol.


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