On today’s segment of Options Jive, Tom and Tony discuss how and when we should trade diagonals.are a combination of a and a and can sometimes be used to replicate covered calls or covered puts.
Max Profit: With two, there isn’t a set max profit for a diagonal spread. However, the width of the can serve as a guideline. Be mindful of the debit paid for a diagonal spread. It can exceed the width of the strikes depending on how it is set up! A debit of 50% of the width of the strikes is a good target, but could go up to around 75%.
While the strategy has positive deltas, there is a negative expectation if the stock goes to the upside and options trade at.