Calendar & diagonal spreads
What is a Diagonal Spread and how does it combine directional strike selection with time-decay exploitation?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A Diagonal Spread combines different strikes and different expirations between the short and long legs, blending directional strike selection with the time-decay benefits of a calendar spread.
How it works
This hybrid allows a trader to express a directional bias (via strike choice) while still benefiting from the front-month option's faster theta decay relative to the longer-dated option.
An example
Buy a 90-strike call expiring in 60 days and sell a 100-strike call expiring in 30 days, combining a bullish lean with calendar-style time decay.
Risk & limitations
Diagonals have more variables (two strikes, two expirations) making risk modeling more complex, and a strong adverse move can overwhelm the benefit of time decay.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.