NEUTRAL
Double Diagonal Strategy Lab
What is a double diagonal?
A double diagonal combines a call diagonal spread and a put diagonal spread around a central price range, selling near-term options and buying longer-term options at wider strikes.
It profits from time decay and a stock that stays within the inner strikes as the front-month options expire, similar in shape to an iron condor but driven mainly by the passage of time.
Execution Legs:
1
Sell a near-term put (strike B) / buy a longer-term put (strike A, lower).
2
Sell a near-term call (strike C) / buy a longer-term call (strike D, higher).
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 ATM or 20-delta strikes outside the 1σ expected move cone.
🛡️ 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