Double Diagonal Spread at a glance
| Construction | Sell 1 put 2 strikes below the money in the front month, buy 1 put 4 strikes below the money in the next month, sell 1 call 2 strikes above the money in the front month, and buy 1 call 4 strikes above the money in the next month. |
|---|---|
| Outlook | Neutral |
| Volatility view | Wants rising IV |
| Max profit | Estimated value of the back month wings at front month expiration with the stock near one of the short strikes, minus the net debit or plus the net credit, times 100. |
| Max loss | Distance between the short and long strikes on one side, plus the net debit or minus the net credit, minus any time value left in that side's long wing, times 100. |
| Breakeven | The lower breakeven sits below the short put strike and the upper breakeven above the short call strike. |
| Experience level | Advanced |
| Also called | Double diagonal, Diagonal iron condor |
How a double diagonal spread works
A double diagonal is an iron condor whose long wings are moved out to the next expiration. You sell a front month put and call two strikes from the money and buy a next month put and call four strikes away. Each side is a diagonal: the long option is further out of the money and expires later than the short option it protects. Depending on strike spacing and the volatility gap between months, the trade can cost a small debit or bring in a small credit.
At front month expiration the payoff looks like an iron condor with rounded edges. If the stock finishes between the short strikes, both front month options expire worthless and you keep the back month wings, whose remaining value adds to your profit. If the stock moves past a short strike, losses build until the long wing on that side starts to offset them. Because the result depends on what the wings are worth at that time, the calculator estimates max profit, max loss and breakevens with an American pricing model.
Before front expiration, the position collects theta while the stock stays between the short strikes, since the closer, shorter dated options decay faster than the further, longer dated wings. Vega depends on spacing. With wings close to the short strikes, the longer dated wings carry more vega and the trade gains from rising implied volatility, much like a calendar. With wide wings it behaves more like an iron condor and can be hurt by rising volatility. The calculator shows the net vega for your strikes.
Double Diagonal Spread example with real numbers
With the stock at $100, implied volatility at 30%, a 4.1% risk free rate and no dividend, you would sell 1 95 put (32 days) at $1.43, buy 1 90 put (60 days) at $1.12, sell 1 105 call (32 days) at $1.78, buy 1 110 call (60 days) at $1.74. That is a net credit of $35. At the front month expiration, the model estimates a maximum profit of $214 and a maximum loss of $465, with breakevens at $92.87 and $108.40. The lognormal chance of profit is 61%.
These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the double diagonal spread calculator above to run the same math on real market prices.
When to use a double diagonal spread
- You expect the stock to stay in a range through front month expiration and want defined risk on both sides.
- You like the iron condor idea but want wings that keep value after the short options expire.
- You plan to sell a new front month strangle each cycle against the same back month wings.
- Front month implied volatility is high compared with the next month.
Max profit, max loss and breakeven
Maximum profit
Estimated value of the back month wings at front month expiration with the stock near one of the short strikes, minus the net debit or plus the net credit, times 100. It depends on how much time value the wings keep, so the calculator estimates it with an American pricing model.
Maximum loss
Distance between the short and long strikes on one side, plus the net debit or minus the net credit, minus any time value left in that side's long wing, times 100. This happens if the stock moves well beyond a short strike by front month expiration, and the calculator estimates it because the wing's leftover value depends on volatility.
Breakeven
The lower breakeven sits below the short put strike and the upper breakeven above the short call strike. Each is the price at front month expiration where the wings' estimated value, minus the short options' intrinsic value, plus any credit or minus any debit, equals zero. The calculator estimates both with its American model.
Double Diagonal Spread Greeks
- Delta: Delta is close to zero at entry. It turns negative as the stock rises toward the short call and positive as it falls toward the short put.
- Gamma: Gamma is negative between the short strikes, coming from the front month options, and it intensifies as front expiration approaches.
- Theta: Theta is positive in the range between the short strikes, since the short front month options lose time value faster than the back month wings.
- Vega: Vega can be positive or negative; close wings make the trade long vega like a calendar, while wide wings make it short vega like an iron condor.
See the live numbers for your position in the Greeks tab of the calculator, or explore a single option in the options Greeks calculator.
Early exercise and assignment risk
Both short front month options carry early assignment risk once they are in the money. The short call is most exposed the day before an ex dividend date, when holders may exercise if the dividend exceeds the call's remaining time value. The short put is most exposed after a sharp decline leaves it deep in the money with little time value, especially when interest rates are high. Neither is likely to be assigned while it stays out of the money, which is where the trade is designed to sit.
If a short option is assigned, the back month wing on that side covers you, but at a further strike. A call assignment leaves you short 100 shares with a long call two strikes higher, and a put assignment leaves you long 100 shares with a long put two strikes lower, so the risk stays capped near the strike width on that side. Exercising the wing to settle forfeits its time value, so trading the shares is usually better, and rolling the threatened side before an ex dividend date avoids the issue.
The calculator's Early exercise risk tab flags short legs that are likely to be assigned. For a single option, use the early exercise calculator or read how early exercise and assignment work.
Pros and cons
Pros
- Defined risk on both sides with a wide range of profitable prices.
- Back month wings keep value after the front month expires, so the structure can be reused.
- Can be built with close wings to benefit from rising volatility, unlike a standard iron condor.
- Each side can be rolled independently as the stock moves.
Cons
- Max profit, max loss and breakevens are model estimates.
- Four legs across two expirations add commissions and slippage.
- Maximum loss can exceed the debit, because the wings sit further out than the short strikes.
- In the money short options can be assigned early, especially calls before an ex dividend date.
How to manage a double diagonal spread
- Many traders close or roll the short strangle when it has lost most of its value, then sell a new front month strangle against the same wings.
- If the stock tests one short strike, roll that side out in time or further away, or close it and keep the other side.
- Close the whole position before the wings near their own expiration, when they lose the time value that makes the structure work.
- Check ex dividend dates inside the front month and act on any in the money short call before then.
Double Diagonal Spread FAQ
What is a double diagonal spread?
A double diagonal spread sells an out of the money put and call in the front month and buys a further out of the money put and call in the next month. It works like an iron condor with longer dated wings and profits when the stock stays between the short strikes. Risk is defined on both sides.
How is a double diagonal different from an iron condor?
A double diagonal buys its protective wings in a later expiration, while an iron condor buys all four options in the same expiration. That lets the double diagonal keep value in the wings after the short options expire and gives it more positive vega than an iron condor with the same strikes. An iron condor has a fixed payoff at a single expiration, while the double diagonal's payoff must be estimated.
Is a double diagonal a credit or debit spread?
A double diagonal can be either a small debit or a small credit, depending on the strike spacing and the gap in implied volatility between the two months. Wider wings tend to reduce the cost because the long options are further out of the money. The calculator shows the net price for the strikes you choose.
What is the max loss on a double diagonal?
The max loss on a double diagonal is roughly the distance between the short and long strikes on one side, plus the net debit or minus the net credit, reduced by any time value left in the long wing. It occurs if the stock moves well past a short strike by front month expiration. The calculator estimates it with an American pricing model.
Related strategies
Iron Condor
An iron condor is a neutral, defined risk credit strategy that sells an out of the money put spread and an out of the money call spread on the same stock and expiration.
Double Calendar Spread
A double calendar spread combines a put calendar below the stock and a call calendar above it, and it profits when the stock stays near or between the two strikes until the front month options expire.
Call Diagonal Spread
A call diagonal spread buys a longer dated call and sells a shorter dated call at a higher strike, and it profits most if the stock rises toward the short strike by front month expiration.
Put Diagonal Spread
A put diagonal spread buys a longer dated put and sells a shorter dated put at a lower strike, and it profits most if the stock falls toward the short strike by front month expiration.
Educational tool, not financial advice. Calculations are theoretical and depend on your inputs; real fills, fees, early assignment and dividends can change results. Options involve risk and are not suitable for every investor.