In derivatives trading, the term diagonal spread is applied to an options spread position that shares features of both a calendar spread and a vertical spread. It is established by simultaneously buying and selling equal amount of option contracts of the same type but with different strike prices and expiration dates.

What is a diagonal spread example?

For example, in a bullish long call diagonal spread, buy the option with the longer expiration date and with a lower strike price and sell the option with the near expiration date and the higher strike price. An example would be to purchase one December $20 call option and the simultaneous sale of one April $25 call.

What is diagonal call spread?

Key Points. A diagonal spread is a 2-legged option strategy where you buy a call (or put) with a distant expiration, and sell a call (or put) with a different strike price and a closer expiration date. ... This strategy is actually a spread, not a covered call (buy/write).