Diagonal Spread

AAA

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. 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. Vertical Spread

    An options trading strategy with which a trader makes a simultaneous ...
  5. Expiration Date (Derivatives)

    The last day that an options or futures contract is valid. When ...
  6. Strike Price

    The price at which a specific derivative contract can be exercised. ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Options & Futures

    Options Basics Tutorial

    Discover the world of options, from primary concepts to how options work and why you might use them.
  2. Options & Futures

    Capturing Profits With Position-Delta Neutral Trading

    This trading strategy will show you how to gain from a decline in implied volatility on any movement of the underlying.
  3. Options & Futures

    Out-Of-The-Money Put Time Spreads

    Learn about this low-risk, bearish options strategy used to speculate on major market declines.
  4. Options & Futures

    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. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  6. Options & Futures

    The Fancy Way To Diversify Your Portfolio: Precious Metal Options

    A guide with strategies on how to invest or trade in precious metals by using options.
  7. Options & Futures

    When And How To Take Profits On Options

    Here are the different criteria to ensure maximum profit taking while trading options.
  8. Brokers

    OptionsXpress Vs. OptionsHouse: Which One To Pick?

    OptionsXpress and OptionsBroker -- each offers a price mix and set of services suitable for certain investors based on their trade approach and priorities.
  9. Options & Futures

    The Future Is Now: All About Futures ETFs

    A new security class - futures ETFs - is gaining popularity. We tell you how futures ETFs work and offer tips.
  10. Options & Futures

    How To Protect A Short Position With Options

    Short selling can be a risky endeavor, but the inherent risk of a short position can be mitigated significantly through the use of options.

You May Also Like

Hot Definitions
  1. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  2. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  3. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  4. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  5. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  6. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
Trading Center