Diagonal Spread

Definition - What does Diagonal Spread mean?

Diagonal Spread is a spread that is created through the simultaneous purchase and sale of two calls or two puts on the same underlying security that differ in both strike price and expiration months.

Testopedia explains Diagonal Spread

A diagonal spread consists of one long option and one short option of the same class that have different strike prices and expiration months. The position is called a diagonal spread because of the way the options are listed in the option chain or in the newspaper.

Example:

Short 1 TRY June 50 call
Long 1 TRY August 40 call

A diagonal spread could also be established using puts

Short 1 TRY March 40 put
Long 1 TRY August 50 put


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