Diagonal Spread

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 expiration dates.


This strategy is called a diagonal spread because it combines a horizontal spread, which represents the difference in expiration dates, with a vertical spread, which represents the difference in strike prices. An example of a diagonal spread is the purchase of a December $20 call option and the sale of an April $25 call.



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Related Terms

Expiration Date

Horizontal Spread

Long

Option

Short

Spread

Strike Price

Vertical Spread

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