Put Diagonal Spread Calculator

Put Diagonal Spread at a glance

How a put diagonal spread works

A put diagonal spread is the bearish twin of the call diagonal. You buy the at the money next month put and sell a cheaper front month put two strikes lower, paying a net debit. The long put has a higher strike and a later expiration than the short put, so it fully covers the short put. The strike gap gives the trade a bearish lean, and the expiration gap lets the faster decaying short put help pay for the long put.

At front month expiration, the short put is worth its intrinsic value and the long put still has time value, which is how the payoff is usually displayed. Profit peaks near the short strike, where the short put expires worthless and the long put is in the money with time left. On a steep decline both puts go deep in the money and the spread approaches the strike width; on a rally both lose value. The calculator estimates max profit and the breakevens with an American pricing model because they depend on the back month put's future value.

Before front expiration, delta is negative and theta builds as the stock approaches the short strike, so a slow drift lower is the ideal path. The long put's larger vega means rising implied volatility helps, which often happens when stocks fall. A sharp rally is the main threat because the long put loses value faster than the cheap short put can offset. A crash far below the short strike also limits the gain, since losses on the short put start to offset further gains on the long put.

Put 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 1 100 put (60 days) at $4.55. That is a net debit of $312. At the front month expiration, the model estimates a maximum profit of $302 and a maximum loss of $312, with a breakeven at $100.10. The lognormal chance of profit is 51%.

These are theoretical American option prices from the Bjerksund and Stensland model, not live quotes. Load any ticker in the put diagonal spread calculator above to run the same math on real market prices.

When to use a put diagonal spread

• You are moderately bearish and expect a gradual decline toward a target by front month expiration.
• You want a lower cost alternative to buying a put outright.
• You plan to sell new front month puts each cycle against the same long put.
• You expect implied volatility to rise if the stock weakens.

Max profit, max loss and breakeven

Maximum profit

Estimated value of the back month put at front month expiration with the stock at the short strike, minus the net debit, times 100. It depends on the long put's remaining time value and implied volatility at that time, so the calculator estimates it with an American pricing model.

Maximum loss

Net debit paid, times 100. The worst case is a strong rally, where both puts lose nearly all their value; because the long put has the higher strike, a crash cannot lose more than the debit.

Breakeven

The upper breakeven is the price at front month expiration where the back month put's estimated value equals the net debit, since the short put is worthless above its strike. A lower breakeven exists only if the net debit exceeds the strike width plus the long put's leftover time value. Both are model estimates.

Put Diagonal Spread Greeks

• Delta: Delta is negative at entry because the long at the money put has more delta than the short out of the money put. It moves toward zero as the stock falls past the short strike.
• Gamma: Gamma is modest at entry and becomes negative as front expiration approaches with the stock near the short strike.
• Theta: Theta tends to be small at first and becomes clearly positive near the short strike, where the front month put loses value fastest.
• Vega: Vega is positive. A rise in implied volatility lifts the long back month put more than the short front month put.

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

The short front month put starts out of the money, so assignment is unlikely early on. If the stock drops well below the short strike, though, that put can become deep in the money with very little time value, and an American put holder may exercise early to collect the strike price in cash. That is more likely when interest rates are high and as expiration approaches. If you are assigned, you buy 100 shares at the short strike, which uses buying power until you close the stock position.

Your long next month put has a higher strike, so it protects those shares: you could sell them at the higher strike, which more than covers the purchase. Rather than exercise the long put and give up its time value, traders usually sell the shares in the market and keep or sell the long put. Dividends matter less here than with calls, because put holders tend to wait until after the ex dividend date. Roll or close a deep in the money short put before it is assigned if you want to avoid holding stock.

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

How to manage a put diagonal spread

• Buy back the short put once most of its value is gone and sell the next front month put to continue the cycle.
• If the stock falls through the short strike quickly, roll the short put down and out to keep the trade working.
• If the stock rallies, avoid selling a new short put above the long put's strike, which could lock in a loss on a later decline.
• Watch the short put's time value after a sharp drop and close or roll it before assignment becomes likely.

Put Diagonal Spread FAQ

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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.