What is a Double Diagonal?
Sell a near-term put and buy a longer-term put at a different strike.
Sell a near-term call and buy a longer-term call at a different strike.
Core structure
Assume the stock trades near $100.
| Leg | Action | Strike | Expiration |
|---|---|---|---|
| 1 | Sell Put | $95 | 30 days |
| 2 | Buy Put | $90 | 90 days |
| 3 | Sell Call | $105 | 30 days |
| 4 | Buy Call | $110 | 90 days |
Worked example
| Leg | Illustrative Premium |
|---|---|
| Sell 30-day $95 Put | +$2.00 |
| Buy 90-day $90 Put | -$3.50 |
| Sell 30-day $105 Call | +$2.20 |
| Buy 90-day $110 Call | -$3.20 |
Ideal outcome
The position often performs best if the stock stays between the short strikes as the near-term expiration approaches.
The exact profit is dynamic because the longer-dated options still have time value remaining.
Why time decay can help
The near-term options usually decay faster than the longer-dated options.
Why max profit/loss are dynamic
Unlike an Iron Condor, a Double Diagonal does not have a simple fixed payoff while both expirations are active.
Volatility considerations
Can help the longer-dated options retain value.
Can help the short options decay faster.
Double Diagonal vs. Double Calendar
| Feature | Double Diagonal | Double Calendar |
|---|---|---|
| Short vs. long strikes | Different | Usually same |
| Expirations | Different | Different |
| Range flexibility | Higher | More centered |
| Directional tuning | More flexible | Less flexible |
Double Diagonal vs. Iron Condor
| Feature | Double Diagonal | Iron Condor |
|---|---|---|
| Expirations | Different | Same |
| Typical entry | Often debit | Usually credit |
| Risk profile | Dynamic | Defined and easier to calculate |
| Volatility exposure | More important | Usually simpler |
| Management | More active | Often simpler |
What happens at the first expiration?
- Close the full position.
- Buy back the short options and keep the longer-dated options.
- Sell new near-term options against the longer-dated options.
- Roll one or both short legs to a later expiration.
Assignment risk
The near-term short put or call can be assigned before expiration if it becomes in the money.
Risk if the stock moves too far
Pros and cons
- Flexible range-bound strategy.
- Can benefit from near-term time decay.
- Longer-dated options provide ongoing protection.
- Can be rolled repeatedly.
- Allows directional and volatility tuning.
- More complex than an Iron Condor.
- P/L is harder to calculate.
- Strong sensitivity to volatility.
- Assignment risk on short options.
- Requires active management.
How to close it
Common mistakes
- Treating the trade like an Iron Condor with fixed max profit/loss.
- Ignoring volatility differences between expirations.
- Using illiquid long-dated strikes.
- Holding short options into expiration without an assignment plan.
- Failing to account for the remaining value of the long options.
Beginner checklist
| Check | Question |
|---|---|
| ☐ Range thesis | What range do I expect into the near-term expiration? |
| ☐ Expirations | How much farther out are my long options? |
| ☐ Volatility | How do near-term and longer-term IV compare? |
| ☐ Assignment | Can I handle assignment on either short leg? |
| ☐ Management | Will I close, roll, or resell short options after the first expiration? |
| ☐ Liquidity | Are all four option legs liquid? |
| ☐ Alternative | Would an Iron Condor or Double Calendar be simpler? |
Key takeaway
It is a range-bound, time-decay and volatility strategy that uses different strikes and different expirations.
The trade-off is: more flexibility and reusable long options in exchange for more complex pricing and active management.