Business Definition for: diagonal spread
diagonal spread
strategy based on a long and short position in the same class of option (two puts or two calls in the same stock) at different striking prices and different expiration dates. Example: a six-month call sold with a striking price of 40 and a three-month call sold with a striking price of 35.
See also
vertical spread
,
calendar spread
Related Terms:
option strategy that involves purchasing an option at one strike price while simultaneously selling another option of the same class at the next higher or lower strike price. Both options have the same expiration date. For example, a vertical spread is created by buying an XYZ May 30 call and selling an XYZ May 40 call. The investor who buys a vertical spread hopes to profit as the difference between the option premium on the two option positions widens or narrows. Also called a price spread.
options strategy that entails buying two options on the same security with different maturities. If the exercise price is the same (a June 50 call and a September 50 call) it is a horizontal spread. If the exercise prices are different (a June 50 call and a September 45 call), it is a diagonal spread. Investors gain or lose as the difference in price narrows or widens.
Referring Terms:
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