For those looking to get short the market while also getting long record low, diagonals are one way to play the market. In today's Best Practice, Tom and Tony cover the advantages and disadvantages of trading them.What are they?
Bear Putare a cross between calendars and vertical spreads. More specifically it is being short a lower priced put in the near month and long a higher priced put in the further away month. Advantages
A huge advantage of using them is the ability to profit from increases in implied volatility. They also have a highwhen done in low implied volatility.Disadvantages
They tend to be more expensive than regular– it is not uncommon to pay up to 75% of the width of the strikes. Diagonals also can be "slow moving". Another disadvantage is the complexity involved – not only are you making a directional assumption, but you are also making a implied volatility assumption.