Put Diagonal Spread Strategy
Sell short-term OTM put, buy longer-term ITM put. Bearish diagonal income.
What is a Put Diagonal Spread?
A Put Diagonal mirrors the call diagonal on the bearish side. Typically: sell short-dated OTM put, buy longer-dated ITM put. Collects weekly premium while holding directional bearish position.
When to Use a Put Diagonal Spread
Use when moderately bearish and want weekly income. Similar to PMCC but bearish. Long leg provides directional exposure.
Key Formulas
- Max Profit
- Complex (strike difference + time decay)
- Max Loss
- Net debit × 100
- Breakeven
- Varies
Example Trade
Buy LEAPS SPY $440 Put, Sell weekly $415 Put. Collect weekly premium on bearish bias.
Common Mistakes to Avoid
- Short put assignment
- Market rally wipes out long leg
- Not rolling consistently
- Poor strike selection
Related Strategies
Frequently Asked Questions
What is a Put Diagonal Spread?
A Put Diagonal mirrors the call diagonal on the bearish side. Typically: sell short-dated OTM put, buy longer-dated ITM put. Collects weekly premium while holding directional bearish position.
When should I use a Put Diagonal Spread?
Use when moderately bearish and want weekly income. Similar to PMCC but bearish. Long leg provides directional exposure.
What is the maximum profit and loss for a Put Diagonal Spread?
Max profit: Complex (strike difference + time decay). Max loss: Net debit × 100.
What is the breakeven price for a Put Diagonal Spread?
Breakeven: Varies. Example trade: Buy LEAPS SPY $440 Put, Sell weekly $415 Put. Collect weekly premium on bearish bias.
What are common mistakes when trading a Put Diagonal Spread?
Common mistakes include: Short put assignment; Market rally wipes out long leg; Not rolling consistently; Poor strike selection.
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