Diagonal Spread

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DEFINITION of 'Diagonal Spread'

An options strategy established by simultaneously entering into a long and short position in two options of the same type (two call options or two put options) but with different strike prices and expiration dates.

BREAKING DOWN 'Diagonal Spread'

This strategy is called a diagonal spread because it combines a horizontal spread, which represents the difference in expiration dates, with a vertical spread, which represents the difference in strike prices. An example of a diagonal spread is the purchase of a December $20 call option and the sale of an April $25 call.

RELATED TERMS
  1. Horizontal Spread

    An options strategy involving the simultaneous purchase and sale ...
  2. Option

    A financial derivative that represents a contract sold by one ...
  3. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  4. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  5. Vertical Spread

    An options trading strategy with which a trader makes a simultaneous ...
  6. Strike Price

    The price at which a specific derivative contract can be exercised. ...
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RELATED FAQS
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    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
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    The term delta refers to the change in price of an underlying stock or exchange-traded fund (ETF) as compared to the corresponding ... Read Full Answer >>
  3. How do I determine the breakeven point for a short put?

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    Retail is a broad sector whose seven discrete segments all exhibit greater volatility than the broader market. The sector ... Read Full Answer >>
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