Diagonal Spread

Description

Buying a long-term option and selling a near-term option with a different strike.

Trading Logic

Combines time decay benefits with a directional bias.

Practical Example

Buy next month $100C, sell next week $105C.

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P/L Curve

Chart Description
  • X-Axis: Stock price at expiration
  • Y-Axis: Expected P/L ($)
  • Green area: Profit; Red area: Loss