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OptionsMath

Diagonal Spread Calculator

Diagonal spread value equals long option theoretical value plus short option premium minus long premium minus short option intrinsic value.

Expiration scenarios

Solution

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Diagonal Spread Formula

The long option is repriced with remaining time after the short option expires.

Worked Examples

Load these examples to compare common diagonal spread payoff outcomes.

DIAGONAL

Estimate a PMCC-style diagonal

The front option expires while the long option still has time value.

  • Enter the manual prices and assumptions.
  • Review the calculated risk, reward, and break-even metrics.
  • Compare the chart with the highlighted scenario.

Result: the calculator updates the scenario metrics and chart from those inputs.

Real fills, fees, and broker margin rules are not modeled.

How It Works

A diagonal spread sells a near-term option against a later option at a different strike.

Example Problem

Buy a longer-dated option and sell a nearer-dated option at a different strike.

  1. Estimate the remaining long option value.
  2. Subtract the long premium paid.
  3. Add the short premium received.
  4. Subtract short option intrinsic at front expiration.

The remaining long option value is model-based and sensitive to IV.

Key Concepts

Time spreads depend heavily on remaining implied volatility after the front option expires.

Applications

  • Planning calendar exits.
  • Stress-testing PMCC diagonals.
  • Comparing short strike choices.

Common Mistakes

  • Using expiration payoff only.
  • Assuming IV remains unchanged.
  • Ignoring assignment on the short option.

Frequently Asked Questions

What does the Diagonal Spread Calculator calculate?

It calculates the selected options result from manual inputs, without requiring live stock or option quotes.

Does this calculator need live market data?

No. Enter the prices, premiums, volatility, days, or Greeks yourself. The calculator uses those manual inputs only.

Are commissions, taxes, margin interest, and assignment fees included?

No. The result excludes commissions, fees, taxes, borrow costs, slippage, and broker-specific margin rules.

Why can real trading results differ?

Real option prices can change with implied volatility, liquidity, dividends, early assignment, and execution prices.

Reference: Standard options payoff, probability, and risk-management formulas.

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