The Double Diagonal is a neutral option trading strategy with a good chance of a relatively small gain.


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Strategy: Double Diagonal

Double Diagonal Option Graph

The Outlook: Mostly neutral. Not expecting dramatic movement up or down before the expiration of the options. Entering when volatility is low is preferable.

The Trade: For the trade graphed above, sell puts one strike below current stock price using a near expiration, buy puts one strike below that and using the next expiration month. Sell calls one strike above current stock price using a near expiration, buy calls one strike above that and using the next expiration month.

Gains when: Stock stays in a reasonably narrow range near the current stock price.

Maximum Gain: Because of the different expiration months, you must use an options calculator or graphing software to calculate the maximum gain.

Loses when: Stock moves beyond one of the breakeven points.

Maximum Loss : Limited, but must use options calculator or graphing software to calculate. Always more than the maximum potential gain.

Breakeven Calculation: Because of different expiration months, must use an options calculator or graphing software to calculate the breakeven.

Advantages compared to stock: Increased leverage, much less capital required, "built-in" stop loss, can gain from no stock movement or limited stock movement, can gain from a rise in implied volatility.

Disadvantages compared to stock: Will lose if stock rises or falls beyond the breakeven points, no dividends.

Volatility: after entry, increasing implied volatility is positive.

Time: after entry, the passage of time is positive.

Margin Requirement : Some brokers will require margin as if you have two credit spreads. In the example, the margin would be $1000. More sophisticated brokers may allow margin of half that, in recognition of the fact that the strategy can only lose on one side.

Variations: Use all calls or all puts. The call or put variations are entered for a debit. You can also target stock prices higher or lower than the current price, as shown at the end of this page.


  • A Double Diagonal trade is an "anti-gambler's trade". There is a good chance of a small profit, and a small chance of a loss. If you manage the trade so that you only take relatively small losses and not the maximum possible loss, you increase your chances of coming out ahead over the long term.
  • A Double Diagonal can be thought of as a Condor that has been Diagonalized. The advantages are:
    • Slightly increased profit potential at the short strikes.
    • Slightly wider range between breakevens.
    • Increasing volatility will help the position.
  • Double Diagonals require a large commission expense. Entering the trade will cost four commissions, and if you need to exit early there will be another four commissions. If you do not use the lowest-commission discount option brokers, the trade might not make much sense. With most brokers, using more contracts will result in lower per-leg commissions overall and might make the trade reasonable.
  • The Double Diagonal can also be entered using the ATM strike price as the short strike for both puts and calls. In that case the position is like owning a Calendar Call and a Calendar Put at the same time. Compared to the first type of Double Diagonal, there is a chance of increased profit. The tradeoff is that the breakeven points are closer together.


  • The Double Diagonal gains if the stock stays in a range around the current stock price and time passes. If the stock moves to one of the breakeven points at any time, the losses can multiply quickly up to the maximum possible. Using the graph at the top of the page, if the stock were to move to 45 or 55 at any time, it would be wise to cut the losses short at about $75, which is about a sixth of the maximum possible loss (not shown on the graph, but about $485).
  • If the reason for entry was to capture an increase in volatility, then an exit when the volatility rises makes sense.
  • This trade is similar to the Calendar Call in that the closer you are to expiration, the greater your risk of giving back any gains you have, especially if the stock is trading near one of the short strikes. For this reason, it may be a good idea to exit Double Diagonals when there is a week left to expiration. See the Delta Neutral Trading page for more information.

The graph below shows what happens if you try to set up a Double Diagonal with the short strikes too far apart, in order to increase the range of profitability. The graph sags in the middle, eliminating gains instead of increasing your chances of a gain. Plus, commission costs could easily overcome any chance of profitability at most stock prices.

If your opinion on a stock is not strictly neutral, but more like "neutral to bullish", you can set up the Double Diagonal to take advantage of that by using short strikes closer together, and in a more bullish relationship, as shown on the graph below. You can do the same thing using more bearish strikes if your opinion is "neutral to bearish".


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