Diagonal Spread

What is a Diagonal spread

Diagonal spreads an options strategy established by simultaneously entering a long and short position in two options of the same type (two call options and two put options) but with different strike prices and different expiration dates.

This strategy can be based bullish or bearish, depending on the composition of the options.

Breaking down ‘dissemination of Diagonal

This strategy is called a diagonal spread because it combines a horizontal spread, also called time spread or calendar spread, which represents the difference in expiration dates, with a vertical spread or price spread, which represents the difference in the price of the strike. Example of the Diagonal spread the purchase in December option the $20 call and selling the APR $25 in the call.

The names of the horizontal, vertical and diagonal spreads refer to the position of each option on the sharing options Quote Board. The options are listed in the matrix of strike prices and dates of expiration. Thus, the features used in vertical spread strategy are all listed in one vertical column. The options in the horizontal spread strategy is given in the same horizontal line.

The parameters used in the diagonal spread in different rows and columns. Their quotes are located diagonally on the Board a quote.

Types of diagonal spreads

Because there are two factors for each option which is different, the exercise price and expiration date, there are many different types of diagonal spreads. They can be bullish or bearish, long or short and use a put or call.

Most of the diagonal spreads are the spreads and the only requirement is that the owner buys the option with a more distant expiration and sells an option with a shorter expiration date. This includes strategies and policies.

Of course, the opposite is also required. Short spread require that the owner buys a shorter duration and sells longer expiration.

What decides either long or short strategy bullish or bearish-it is a combination of the strike price. The following table describes the possibilities:

diagonal spreads
shelf life
prices on strike
the opinion of the market
calls
long
sell next
to buy Far
sell below
buy top
bear

long
sell next
to buy Far
buy Lower
sell above
bullish

short
buy next
to sell far
sell below
buy top
bullish

short
buy next
to sell far
buy Lower
sell above
bear
puts
long
sell next
to buy Far
sell below
buy top
bear

long
sell next
to buy Far
buy Lower
sell above
bullish

short
buy next
to sell far
sell below
buy top
bullish

short
buy next
to sell far
buy Lower
sell above
bear

For example, in a bullish long call diagonal spread, we buy an option with a more distant expiration and a lower strike price and selling the option with a near expiration date and higher strike price.

The organization

While the typical long vertical or long calendar spread results in a debit account, a combination of punches and exhalations can result in either a debit or credit.

In addition, the easiest way to use a spread diagonally, to close the deal when the short option. However, many traders “roll” strategy, often replacing the expired option with the option with the same strike price but with expiration of the long option.

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