A Diagonal Spread involves two Options that are bought and sold at different strike prices and with different expiry periods (e.g. months). The option type (either Put or Call) and the Underlying asset or commodity are the same.
A diagonal Spreads strategy is similar to a Calendar Spread, although unlike that strategy, the strike prices are different.
Bullish and Bearish diagonal Spreads can be constructed. Usually, the Short option Strike Price is more Out Of The Money than the Long Strike Price and these diagonals benefit when Volatility increases. Short diagonal Spreads are the inverse and the Short side is more In The Money than the Long, these positions benefit from a contraction in Volatility.
Contributed by: Ralph Windsor
A diagonal Spreads strategy is similar to a Calendar Spread, although unlike that strategy, the strike prices are different.
Bullish and Bearish diagonal Spreads can be constructed. Usually, the Short option Strike Price is more Out Of The Money than the Long Strike Price and these diagonals benefit when Volatility increases. Short diagonal Spreads are the inverse and the Short side is more In The Money than the Long, these positions benefit from a contraction in Volatility.
Related Directory Entries
Featured Video View All
Diagonal Spread Overview
Training video about diagonal spreads from Success With Options.
External Links
Diagonal Bull Call Spreadhttp://www.theoptionsguide.com/diagonal-bull-call-spread.aspx
The Options Guide article on diagonal bull call spreads.
View Options Guide Strategy Finder in Options Market Glossary Directory
Diagonal Spreadhttps://www.tastytrade.com/tt/learn/diagonal-spread
TastyTrade.com item explaining diagonal spreads.
View Tasty Trade in Options Market Glossary Directory
Option Spreads: Diagonal Spreadshttp://www.investopedia.com/university/optionspreadstrategies/optionspreads6.asp
Investoedia article about diagonal spreads.
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