Call Diagonal Spread Strategy
Sell short-term OTM call, buy longer-term ITM call. Covered-call-like structure.
What is a Call Diagonal Spread?
A Call Diagonal combines different strikes AND different expirations. Typically: sell short-dated OTM call, buy longer-dated deeper ITM call. Similar to covered call but with long call as substitute for stock. Known as 'Poor Man's Covered Call'.
When to Use a Call Diagonal Spread
Use as a cheaper substitute for covered calls. Best when moderately bullish with a desire for premium income. Common 'PMCC' (Poor Man's Covered Call) strategy.
Key Formulas
- Max Profit
- Complex (depends on strike spread and time decay)
- Max Loss
- Net debit × 100 (approximately)
- Breakeven
- Varies with IV and time
Example Trade
Buy LEAPS AAPL $180 Call (1yr out), Sell weekly $205 Call. Collect weekly premium while holding long leg.
Common Mistakes to Avoid
- Short call getting assigned early
- Long call losing too much value
- Not rolling short leg regularly
- Ignoring dividend/ex-date risk
Related Strategies
Frequently Asked Questions
What is a Call Diagonal Spread?
A Call Diagonal combines different strikes AND different expirations. Typically: sell short-dated OTM call, buy longer-dated deeper ITM call. Similar to covered call but with long call as substitute for stock. Known as 'Poor Man's Covered Call'.
When should I use a Call Diagonal Spread?
Use as a cheaper substitute for covered calls. Best when moderately bullish with a desire for premium income. Common 'PMCC' (Poor Man's Covered Call) strategy.
What is the maximum profit and loss for a Call Diagonal Spread?
Max profit: Complex (depends on strike spread and time decay). Max loss: Net debit × 100 (approximately).
What is the breakeven price for a Call Diagonal Spread?
Breakeven: Varies with IV and time. Example trade: Buy LEAPS AAPL $180 Call (1yr out), Sell weekly $205 Call. Collect weekly premium while holding long leg.
What are common mistakes when trading a Call Diagonal Spread?
Common mistakes include: Short call getting assigned early; Long call losing too much value; Not rolling short leg regularly; Ignoring dividend/ex-date risk.
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