diagonal spread

Type of Strategy

trading / investing


bullish / neutral (call diagonals)

implied volatility

varied, though generally low iv preferred


One long option with a long-dated expiry is paired with a short option having a near term expiry.


Purchase a longer-dated call/put option and sell a nearer-term call/put option against the long position.  There are many variations of the diagonal spread based on expiry, spread width and direction, type of option contract, and use.

A diagonal spread can be considered a combination of a vertical spread and a calendar spread combined into a single two-leg transaction.

Specific types and variations may be known as poor man’s covered call, poor man’s covered put, fig-leaf, leveraged covered call, leveraged covered put, dragon leap, diagonal call spread, diagonal put spread, and likely others not mentioned.

Traders often use the poor man’s covered call and poor man’s covered put strategies from the diagonal spread category.

Investors often use the dragon leap variation for equity investments.


Traders generally set profit targets at 25%-50% of theoretical max.  If stock price moves against a position, the near-term option can be rolled closer to the breakeven price for an additional credit.


Both the poor man’s covered call and the dragon leap spread will be presented in more detail.

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