Option Trading Lesson 2.6

What Is a Diagonal Spread?

A diagonal spread (對等) is a modified calendar spread involving different strike prices. It is 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 different expiration dates. (搬龍門，搬行權價和日期，兩者都變動)

Diagonal spreads allow traders to construct a trade that minimizes the effects of time, while also taking a bullish or bearish position. It is called a "diagonal" spread because it combines features of a horizontal (calendar) spread and a vertical (strike price) spread.

Types of Diagonal Spreads

Because there are two factors for each option that are different, namely strike price and expiration date, there are many different types of diagonal spreads. They can be bullish or bearish, long or short, and utilize either puts or calls. (任何看法、任何日期、 獲利來自時間消耗)

Typically, these are structured on a 1:1 ratio, and long vertical and long calendar spread results in a debit to the account. With diagonal spreads, the combinations of strikes and expirations will vary. 

Long diagonal spread is generally put on for a debit .

Short diagonal spread is set up as a credit.

However, many traders "roll" the strategy (轉倉), replacing the expired option with an option with the same strike price but with the expiration of the longer option (or earlier).

Example:

Call:
SC 110, due on 7 Jan: LC 120, due on 7 Mar (Debit premium)

LC 110, due on 7 Jan: SC 120 due on 7 Mar (Credit premium)

Put:

SP 90, due on 7 Jan: LP 80, due on 7 Mar (Debit premium)

LP 90, due on 7 Jan: SP 80 due on 7 Mar (Credit premium)

Source: Options playbook