NEUTRAL
Diagonal Call Spread Strategy Lab
What is a diagonal call spread?
A diagonal call spread buys a longer-dated call and sells a shorter-dated call at a different (usually higher) strike, blending a calendar spread with a vertical spread.
It profits from time decay on the short option plus some directional movement, with the profit zone shifting toward the short strike as expiration nears.
Execution Legs:
1
Buy a longer-term call at strike A.
2
Sell a shorter-term call at strike B (higher strike).
NeutralTime DecayLimited Loss
Institutional Playbook & Ideal Timing
🎯 Ideal Timing & Volatility Environment:
Low IV regime with front-month IV lower than back-month IV (contango). Ideal before a known catalyst that occurs in the back-month expiration cycle.
🎯 Strike & DTE Target:
30 to 45 DTE. Sell the 30-delta strike at support/resistance, buy the 15-delta wing for protection.
🛡️ Exit & Risk Rules:
Take profit at 50% of max profit (for credit/neutral) or 100%–200% ROI (for debit). Cut losses at 100% of debit paid (or 2x credit collected). Close before expiration if delta expands beyond 70.
Greeks Sensitivity & Mechanics
⚡ +Vega (Long Vol)
Benefits from IV expansion. Hurt by post-earnings IV crush.
⏳ −Theta (Decay Cost)
Loses premium value every day; needs swift price displacement.
🚀 +Gamma (Convexity)
Profit accelerates as underlying moves further in your direction.
Directional Bias (Δ)
Delta-Neutral (Δ ≈ 0): Directionless; relies on vol or decay.
Interactive Payoff Simulator
Expiration Payoff
Interactive Parameters
Stock Price ($)
$100.00
Days to Expiry (DTE)
30 Days
Lower Strike A ($)
$90.00
Higher Strike B ($)
$110.00
Max Profit
$1000.00
Max Loss
$1000.00
Breakeven
$100.00
Risk / Reward
1 : 1.50
Net Delta (Δ)
+0.05
Net Gamma (Γ)
+0.015
Net Theta (Θ)
-1.80
Net Vega (ν)
+3.50