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. Vertical Spread

    An options trading strategy with which a trader makes a simultaneous ...
  3. Bull Call Spread

    An options strategy that involves purchasing call options at ...
  4. Long Leg

    The part of an option spread strategy that involves buying an ...
  5. Bear Call Spread

    A type of options strategy used when a decline in the price of ...
  6. Short Leg

    Any contract in an option spread in which an individual holds ...
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