Tom and Tony discuss how and when to trade diagonals. Ais a combination of a and a . Diagonal spreads are effective for their congruency to covered calls or covered puts.
With two expirations, there isn’t a set max profit for a diagonal spread. However, the width of thecan serve as a guideline. We must be mindful our initial debit is not greater than the width of the strikes. Also, while the strategy has positive , there is a negative profit expectation if the stock moves too far to the upside.
Similar to normal debit spreads, we shoot for 50% of the width for. When purchasing deep in-the-money options for strategies such as covered call/covered put diagonals, paying up to 75% of the width of the strikes is normal.