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.

INVESTOPEDIA EXPLAINS '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. Spread

    1. The difference between the bid and the ask price of a security ...
  2. Horizontal Spread

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

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

    1. The buying of a security such as a stock, commodity or currency, ...
  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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  2. How can an investor profit from the cyclical nature of the electronics sector?

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  3. What does negative vega mean for credit spreads?

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  4. What options strategies are best suited for investing in the banking sector?

    The covered call option strategy allows investors to profit from the banking sector's stability and its track record for ... Read Full Answer >>
  5. What options strategies are best suited for investing in the drugs sector?

    The covered call and long straddle options strategies enable investors to capitalize on the unique characteristics of the ... Read Full Answer >>
  6. What's the difference between a credit spread and a debt spread?

    When trading or investing in options, there are two main option spread strategies, credit spreads and debit spreads. Credit ... Read Full Answer >>
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