Diagonal Spread

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. Bull Call Spread

    An options strategy that involves purchasing call options at ...
  3. Bear Call Spread

    A type of options strategy used when a decline in the price of ...
  4. Long Jelly Roll

    An option strategy that aims to profit from a time value spread ...
  5. Buy A Spread

    Option strategy that will be profitable if the underlying security ...
  6. Bear Spread

    1. An option strategy seeking maximum profit when the price of ...
Related Articles
  1. Trading

    Option Spreads: Diagonal Spreads

    By John Summa, CTA, PhD, Founder of OptionsNerd.com Spreads with Different Months and Different Strikes Now that we have covered the basic spreads - debit/credit vertical and debit/credit horizontal ...
  2. Trading

    Understanding Bull Spread Option Strategies

    Bull spread option strategies, such as a bull call spread strategy, are hedging strategies for traders to take a bullish view while reducing risk.
  3. Trading

    Option Spreads: Debit Spreads Structure

    By John Summa, CTA, PhD, Founder of OptionsNerd.comSpreads, as we have seen, are constructed by taking positions on the long (buying the option) side while simultaneously taking a position on ...
  4. Trading

    Vertical Bull and Bear Credit Spreads

    This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
  5. Trading

    Get Familiar with These 6 Option Strategies

    When you’re ready to move beyond the basics of investing, it’s time to learn your options.
  6. Trading

    Three Ways to Profit Using Call Options

    A brief overview of how to provide from using call options in your portfolio.
  7. Trading

    Which Vertical Option Spread Should You Use?

    Knowing which option spread strategy to use in different market conditions can significantly improve your odds of success in options trading.
  8. Trading

    Profiting From Stock Declines: Bear Put Spread Vs. Long Put

    If you're bearish, you should compare the risk/reward characteristics of these two strategies.
  9. Investing

    Income Strategies for Your Portfolio to Make Money Regularly

    Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums.
  10. Trading

    The Butterfly Spread

    A butterfly spread is a neutral options strategy with both limited risk and limited profit potential. The strategy involves four options contracts with the same expiration month but with three ...
RELATED FAQS
  1. How are call options priced?

    Learn how aspects of an underlying security such as stock price and potential for fluctuations in that price, affect the ... Read Answer >>
  2. What is spread hedging?

    Learn about one of the most common risk-management strategies options traders use, called spread hedging, to limit exposure ... Read Answer >>
  3. Do options make more sense during bull or bear markets?

    Understand how options may be used in both bullish and bearish markets, and learn the basics of options pricing and certain ... Read Answer >>
  4. What's the difference between a credit spread and a debt spread?

    Learn about debit and credit option spread strategies, how these strategies are used, and the differences between debit spreads ... Read Answer >>
  5. When is a call option considered to be "in the money"?

    Learn about call options, their intrinsic values and why a call option is in the money when the underlying stock price is ... Read Answer >>
  6. How can I use an out-of-the-money put time spread for downside risk?

    Learn how using an out-of-the-money time put spread can be used to hedge downside risk by reducing the amount of premium ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center