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Diagonal Spread

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Dictionary Says

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 Says

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 Definitions

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    Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, with the expectation that the asset will rise in value.2. In the context of options, the buying of an options ...
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  • Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with the expectation that the asset will fall in value.2. In the context of options, it is the sale (also known as "writing") of ...
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  • Strike Price

    The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike prices are fixed in the contract. ...
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    • Expiration Date

      The last day on which an options or futures contract is valid. When an investor buys an option, the contract gives them the right but not the obligation to buy or sell an asset at a ...
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    • Option

      A financial derivative that represents a contract sold by one party (option writer) to another party (option holder). The contract offers the buyer the right, but not the obligation, to ...
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    • Spread

      1. The difference between the bid and the ask price of a security or asset. 2. An options position established by purchasing one option and selling another option of the same class but ...
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    • Vertical Spread

      An options trading strategy with which a trader makes a simultaneous purchase and sale of two options of the same type that have the same expiration dates but different strike prices.
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    • Horizontal Spread

      An options strategy involving the simultaneous purchase and sale of two options of the same type, having the same strike price, but different expiration dates.
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