{"id":45205,"date":"2023-03-24T08:47:57","date_gmt":"2023-03-24T07:47:57","guid":{"rendered":"https:\/\/staging.captrader.com\/glossar\/glossar-diagonal-spread\/"},"modified":"2025-08-12T15:49:10","modified_gmt":"2025-08-12T13:49:10","slug":"glossary-diagonal-spread","status":"publish","type":"glossar","link":"https:\/\/www.captrader.com\/en\/glossar\/glossar-diagonal-spread\/","title":{"rendered":"Diagonal Spread"},"content":{"rendered":"
\"\"<\/figure>\n\n\n\n

The Diagonal Spread is an advanced Option strategy<\/a>which should be used only with appropriate experience. The strategy uses options with different expiration dates and different strike prices and is a kind of combination of a vertical spread and a Calendar Spread<\/a>. This enables options traders to control the Greeks precisely and adjust them optimally to the current market situation. A calendar spread reacts sensitively to the option indicator Vega or to changes in the implied volatility<\/a>. Therefore, the trade is often used to speculate on a certain development of the IV, with the market direction playing a secondary role. In this article you will learn how exactly a diagonal spread works and what you should pay attention to when using it.<\/p>\n\n\n\n

Definition Diagonal Spread<\/h2>\n\n\n\n

A diagonal spread is an options strategy in which an in-the-money (ITM) Call<\/a>- or Put option<\/a> with a longer term is purchased. At the same time, an out-of-the-money (OTM) option with a shorter term is sold.<\/p>\n\n\n\n

The diagonal spread is a debit spread, i.e. when opening the trade a Option premium<\/a> paid. (The revenue from the sold option with the shorter remaining term is less than the cost of the option with the longer remaining term).<\/p>\n\n\n\n

P&L diagram of a diagonal spread<\/h2>\n\n\n\n

On the P&L diagram you can see that the maximum profit and the maximum loss are limited. A long call diagonal spread (see screenshot P&L diagram) makes a profit on rising prices as well as on slightly falling prices. A long put diagonal spread makes a profit on falling prices as well as on slightly rising prices.<\/p>\n\n\n\n

\"CapTrader_Long<\/figure>\n\n\n\n

What to look for when trading a diagonal spread<\/h2>\n\n\n\n

A diagonal spread is a spread that is similar in directional orientation to a Bull Call Spread<\/a> or a Bear Put Spread<\/a>. The special feature of the strategy is that it reacts positively to an increase in implied volatility and at the same time profits from the higher time value loss of the option with the shorter maturity. You may already know this behavior from a calendar spread. This is neutral with regard to the market direction. While the calendar spread depends on the underlying not making a large movement, the diagonal spread benefits from a movement in one direction, but suffers a larger loss in the case of a strong movement in the opposite direction.<\/p>\n\n\n\n

Maximum loss<\/h3>\n\n\n\n

The maximum loss is limited to the option premium paid at the opening of the trade. In the case of a diagonal call spread, the maximum loss occurs (at the time of the earlier expiration date) if the underlying falls far below the strike price of the Long calls<\/a> falls and this becomes worthless.<\/p>\n\n\n\n

With a diagonal put spread, the maximum loss occurs (at the time of the earlier expiration date) when the underlying rises far above the strike price of the long put.<\/p>\n\n\n\n

Maximum profit<\/h3>\n\n\n\n

The maximum possible profit at the time of the earlier expiration date occurs when the purchased option At The Money (ATM) expires.<\/p>\n\n\n\n

Break Even Point<\/h3>\n\n\n\n

The break-even point cannot be calculated unambiguously due to the different expiration dates.<\/p>\n\n\n\n

Market assessment<\/h3>\n\n\n\n

A diagonal spread is basically a neutral to slightly directional option strategy. If, for example, you assume that a market will either rise or move sideways, or even fall slightly, but a major price decline is unlikely, then the diagonal spread is a suitable strategy. In addition to the directional market assessment, the implied volatility plays a decisive role.<\/p>\n\n\n\n

Implied volatility<\/h3>\n\n\n\n

A diagonal spread makes a profit when implied volatility (IV) increases. Therefore, the trade is usually used in a low IV environment or in anticipation of an IV increase. This can be, for example, when there is a news event. The use of a diagonal spread is also useful as a pre-earnings strategy, as the development of implied volatility can be estimated relatively reliably here.<\/p>\n\n\n\n

Residual term and fair value expiry<\/h3>\n\n\n\n

A diagonal spread consists of a bought option and a sold option. The bought option suffers from time value loss, while the sold option benefits from it. Since the theta of the sold option is higher due to the shorter remaining term, the diagonal spread benefits overall from time value loss of the options.<\/p>","protected":false},"author":29,"featured_media":0,"template":"","class_list":["post-45205","glossar","type-glossar","status-publish","hentry"],"acf":{"blog_summary":"","blog_faq_schalter":"nein","faq_uberschrift":"","blog_faq_loop":null},"_links":{"self":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/glossar\/45205","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/glossar"}],"about":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/types\/glossar"}],"author":[{"embeddable":true,"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/users\/29"}],"wp:attachment":[{"href":"https:\/\/www.captrader.com\/en\/wp-json\/wp\/v2\/media?parent=45205"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}