A spread with different strikes and different expirations; a calendar with a directional tilt, so it trades time decay and price at once.
A diagonal sells a shorter-dated option and buys a longer-dated one at a different strike. It inherits the positive theta and long vega of a calendar-spread and adds a directional bias from the strike offset, which makes it flexible and also harder to model in your head.
The practical rules are worth memorising. Long diagonals want the underlying to drift toward the short strike and volatility to rise; they are damaged by a sharp move past the short strike before the short leg expires. Debit paid should stay below the strike width if you want the structure to be safe at the extremes.
Example: XYZ at $50. Buy the 90-day $52.50 call at $2.05, sell the 30-day $55 call at $0.60 for a $1.45 debit. If XYZ grinds to $54 over the month, the short call expires nearly worthless and the long call has gained on both price and remaining time.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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