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. Long (or Long Position)

    1. The buying of a security such as a stock, commodity or currency, ...
  2. Option

    A financial derivative that represents a contract sold by one ...
  3. Strike Price

    The price at which a specific derivative contract can be exercised. ...
  4. Spread

    1. The difference between the bid and the ask price of a security ...
  5. Short (or Short Position)

    1. The sale of a borrowed security, commodity or currency with ...
  6. Expiration Date (Derivatives)

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