Diagonal Spread

A diagonal spread combines two options at different strikes AND different expiration dates — one sold, one bought — blending a directional view with the same time-decay dynamic a calendar spread uses.

Key Facts

Market Outlook: Depends on the strikes chosen. The version shown on this page — buy a farther-dated lower-strike call and sell a near-dated higher-strike call — is moderately bullish.
Construction: Sell a near-dated option and buy a farther-dated option of the same type (both calls or both puts) at a different strike. Usually opened for a net debit.
Max Profit: No fixed formula. For the version shown here, the best result usually comes near the short strike at the near-term expiration. Its size depends on the farther-dated option's remaining value, which depends on implied volatility, time remaining and interest rates.
Max Loss: For a call diagonal whose long strike is at or below the short strike, the loss cannot exceed the net debit if the position is closed at the near-term expiration — the near-dated call expires and the farther-dated call, which still has time value, is sold — assuming no dividends and no early assignment. If the long strike is above the short strike, the loss can exceed the debit by up to the difference between the strikes. For put diagonals, this limit is not guaranteed.
Breakeven(s): No fixed formula. They depend on the strikes and on the same volatility and time assumptions. The version shown here has one or two at the near-term expiration.
At Expiration: When the near-dated option expires, it is worth only its intrinsic value, while the farther-dated option still has time value. The chart above estimates that remaining value with an option-pricing model, so its curve is an estimate, not a fixed payoff.

Per share, at expiration (at the near-term expiration for calendar and diagonal spreads). Assumes the position is held until then and ignores commissions, taxes, dividends and early assignment.

Illustrative — Valued at the Near Expiration

Diagonal spread — the near-dated leg is at expiration; the farther-dated leg still holds time value, priced theoretically.

Illustrative example — not live market data.

Requires Two Expiration Dates

This structure only works with two different expiration dates, so it isn't a one-click preset in OptionLab today. Build it in Manual Market instead, where every leg gets its own expiration date. US and Israel market builders currently use one shared expiration for the whole position.

Related Strategies

Calendar Spread →Iron Butterfly →See all strategies →

How It Works

A diagonal spread sells a near-dated option at one strike and buys a farther-dated option at a different strike — the exact strikes and directions depend on the outlook being expressed. At the near option's expiration, it settles at intrinsic value while the farther-dated option still has remaining time, so its value depends on both the strike difference and where the underlying is trading.

Like a calendar spread, this is not a one-click preset in OptionLab today — it's built by placing two legs with different strikes and different expiration dates, which requires Manual Market (see the callout above).

Build a Diagonal Spread in Manual Market

Add two option legs at different strikes, then give each one its own expiration date — one near, one farther out. OptionLab values the farther-dated leg theoretically and shows you the resulting payoff, breakeven points, and maximum profit and maximum loss.

Open Manual Market