Also, notice the profit and loss lines are not diagonap. Straight lines and hard angles usually indicate that all options in the strategy have the same expiration date. The StrategyYou can think of this as a two-step strategy. It starts out as a time decay play. The diagonal option spread offers a great compromise between the vertical spread and the horizontal spread.
For the discussion here, we will consider only debit spreads.VERTICAL SPREAD —- You buy a Call (Put) diagonal spread pdf has a delta oLong Put Diagonal SpreadA Psread Put Diagonal Diagonal spread pdf is the combination of a long put vertical spread and a put calendar spread. This results in a bearish position that can benefit from an increase in implied volatility.
A Long Put Diagonal Spread is usually used to replicate a covered put position.Directional Assumption: BearishSetup:- Buy an in-the-money (ITM) put option in a longer-term expiration cycle (Expiration 2)- Sell an out-of-the-money (OTM) put option in a near-term expiration cycle (Expiration 1)The trade will be entered for a debit.