Diagonal Spreads

The diagonal spread is an option spread strategy that involves the simultaneous purchase and sale of equal number of options of the same class, same underlying security with different strike prices and different expiration months.

The diagonal spread is very much like the calendar spread, where near term options are sold while long term options are bought to take advantage of the rapid time decay in options that are soon to expire.

The main difference between the calendar spread and the diagonal spread lies in the near term outlook. The employer of the diagonal spread has a near term outlook that is slightly more bullish or bearish.

Diagonal Call Spread

If the option trader's near term outlook is mildly bullish, he can implement a diagonal bull spread by writing higher strike near-month calls against lower strike far-month calls.

Diagonal Put Spread

If the option trader's near term outlook is mildly bearish, he can employ a diagonal bear spread by writing lower strike near-month puts against higher strike far-month puts.

Ready to Start Trading?

Open an account at OptionsHouse.com and get 100 commission-free trades + free virtual trading tool!

Your new trading account is immediately funded with $5,000 of virtual money which you can use to test out your trading strategies using OptionHouse's virtual trading platform without risking hard-earned money.

Once you start trading for real, your first 100 trades will be commission-free! (Make sure you click thru the link below and quote the promo code '60FREE' during sign-up)

Click here to open a trading account at OptionsHouse.com now!

Join the Discussions @ The Options Forum

Beginners Questions

Advanced Strategy Talks

RSS Feed Widget

Trading Ideas & Opportunities

Home | About Us | Terms of Use | Disclaimer | Privacy Policy | Sitemap

Copyright 2016. TheOptionsGuide.com - All Rights Reserved.