Understanding Diagonals Spreads a versatile Options Strategy

A diagonal spread is a complex options strategy that a trader may use to potentially profit from various factors, including time decay, changes in volatility, and price movement. The term diagonal comes from the spread being a combination of a vertical and a horizontal (calendar) spread. The strategy involves buying one option and selling another on the same underlying asset, with different strike prices (the vertical portion) and expiration dates (the horizontal). Both options are of the same type: either calls or puts, with the sold option having a closer expiration date than the bought option.