Long Diagonal Put Spread [Strategy Overview]

• Strategy: Sell OTM nearest month (usually 30day) put options contract + Buy ATM further month put options contract (ratio of 1 to 1)

• Number of legs: 2

• Market Prognosis = Sideways + Bearish (Down-Market)

• Implied Volatility = In the low 20% of the last one year for the long leg.

This requires specialist software such as Optionetics Platinum.

• Expiration Month = 30days to expire

• Initial Cost = Initial Risk = Initial Max Loss = Premium paid for the Diagonal Put Spread = premium paid for long leg + premium received for short leg

• Max Profit = not fixed and varied with IV changes and best calculated by software such as Optionetics Platinum

• Upside Breakeven Point = Unclear

• Downside Breakeven Point = not fixed and best formulated by software such as Optionetics Platinum

• Margin = None

• Advantage over Short Straight Call or Put, Spreads and Stock = increase in profit potential (in both down and sideway market)

• Disadvantage over Short Stock = Limited time to be right.

Tags: bullish, Diagonal Put, Long, sideway, Spread

Category: Calendar Spreads