Strategy Overview
Medium RiskAdvancedBullishBearish
A diagonal spread is like a calendar spread but with different strikes. It combines directional bias with time decay, offering more flexibility.
Max Profit
Variable - potentially unlimited on back leg
Max Loss
Net debit paid
Breakeven
Varies with strikes and premiums
Probability
~45% win rate
hist. est.
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Example Setup Calculator
$
Debit Paid
$200
Max Profit
$300
Max Loss
$200
Breakeven
$102.00
Strategy Components
SELL OTM CALL
Sell near-term OTM option
BUY ATM CALL
Buy longer-term ATM option
When to Use
- You have directional bias but want time decay
- You want to reduce long option cost
- You expect moderate move over time
- You want flexibility in managing position
Best Market Conditions
- Moderate directional bias
- Want income while waiting
- Trending market expected
Best Practices
- Choose front strike based on price target
- Roll front month after expiration
- Monitor delta and theta
- Can convert to vertical spread
Ready to Trade?
Review Diagonal Spread and practice it in paper trading with the school workflow.
Paper Trading