Home › Options Glossary › Diagonal spread

Diagonal spread

A calendar spread with different strikes as well as different expirations — part directional, part time-decay bet.

A diagonal spread combines two options of the same type where you buy one strike and sell another, but the two legs also have different expirations. That mix of different strikes and different dates is what makes it "diagonal" rather than vertical (same date) or horizontal (same strike). Most traders build it with a long-dated option they own and a short-dated option they sell against it.

In practice it's a way to collect premium repeatedly while keeping directional exposure. A common version: buy a 90-day call at the 100 strike and sell a 30-day call at the 105 strike. When the near option expires, you sell another short call against the long one, month after month, lowering your net cost over time. The short leg pays for the theta decay you'd otherwise suffer on the long leg.

The classic mistake is selling the short strike below where the stock might rally to. If price blows past your short strike before the near option expires, gains on the long leg get capped and managing the position gets awkward. Give yourself room, and watch that the long option still has enough time value left to keep the structure working.

← Back to the glossary · Guides · Strategies

All options terms

Call Put Strike price Premium Expiration In the money (ITM)At the money (ATM)Out of the money (OTM)Intrinsic value Time value (extrinsic)Delta Gamma Theta Vega Implied volatility (IV)Open interest Assignment Exercise Spread Break-even Probability of profit (POP)Assignment risk / early assignment LEAPS Naked (uncovered) option Rho Historical volatility (HV)Volume Bid-ask spread Moneyness Covered call Cash-secured put Vertical spread Iron condor Straddle Strangle Rolling Margin Max pain American-style option European-style option Contract multiplier Debit vs credit Volatility skew The Greeks Underlying Hedge Leverage Expected move Notional value Protective put Collar Butterfly spread Iron butterfly Calendar spread Credit spread Debit spread Bull call spread Bear put spread Ratio spread Synthetic position The wheel strategy Poor man’s covered call (PMCC)Box spread Put-call parity Pin risk IV crush IV rank / IV percentile Ex-dividend date Deep in the money Weeklys 0DTE (zero days to expiration)Order types (to open / to close)Buying power reduction Cash settlement Market maker Slippage Mid price Black-Scholes model

Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss.