Diagonal Bear Put Spread

Diagonal bear put spread combines options with different expirations. Buy a longer-dated put and sell a nearer-dated put at a different strike.

Profit, loss and breakeven

At the nearer expiration the longer-dated option still has time value. Its value depends on price, remaining time, implied volatility, interest rates and dividends. Exact maximum profit and breakeven points cannot be calculated from a single common-expiration intrinsic-value graph. The residual value is not guaranteed to remain close to the entry premium.

For a matched long calendar, the entry debit is commonly used as the theoretical risk measure under a maintained hedge. Diagonal strikes, exercise style, dividends, assignment and later position management need separate analysis. A short option assignment can create stock exposure; removing a protective leg changes the risk.

Valuation at the first expiration

Profit/loss equals the market value of the remaining long options minus the settlement or close-out cost of the shorts minus the net entry debit and costs. If the long options are retained afterward, the position and its potential outcomes change.

Our expiration calculators require the same expiration for every option leg and do not value this trade. Use a model appropriate to the actual contracts, and confirm broker assignment procedures.

Scope of the risk estimate

This page describes a family of positions or a hedge. Exact profit, loss and breakeven depend on the specified legs, valuation date, contract terms and any underlying portfolio. A portfolio hedge also depends on basis and correlation; protection is not guaranteed. Do not infer an exact payoff or a risk-free arbitrage from the strategy name alone.