Vertical vs Diagonal Spreads
Understand the structural differences between vertical and diagonal spreads to choose the right tool for your market outlook.
What is This comparison?
This comparison Vertical spreads use the same expiration with different strikes, while diagonal spreads use different expirations and usually different strikes.
This fundamental difference creates distinct theta and vega profiles, making each spread type suited for different market conditions.
Quick Comparison
| Feature | Vertical Spread | Diagonal Spread |
|---|---|---|
| Max Profit | Premium received (credit) or width - debit (debit) | Variable (depends on IV) |
| Max Loss | Width - premium (credit) or debit paid (debit) | Net debit paid |
| Break Even | Short strike +/- net premium | Complex (depends on IV at expiration) |
| Best For | Directional views, income | IV plays, time decay capture |
| Win Rate | 55-75% depending on setup | 50-65% |
| Complexity | Beginner-Intermediate | Intermediate-Advanced |
| Capital Required | $500-2,000 | $500-3,000 |
Feature-by-Feature Comparison
When to Use Vertical Spread
Use vertical spreads when you have a directional view and want defined risk/reward with simple management. Best for income trading and directional plays.
Learn Vertical SpreadWhen to Use Diagonal Spread
Use diagonal spreads when you want to exploit term structure, create Poor Man's Covered Calls, or have a longer-term view with short-term income.
Learn Diagonal SpreadVertical Spread Examples
- Bull Put Spread: Sell higher put, buy lower put
- Bear Call Spread: Sell lower call, buy higher call
- Bull Call Spread: Buy lower call, sell higher call
- Bear Put Spread: Buy higher put, sell lower put
Diagonal Spread Examples
- PMCC: Buy far-dated ITM call, sell near-dated OTM call
- Calendar: Same strike, different expirations
- Double Diagonal: Diagonals on both sides
Frequently Asked Questions
What is the difference between vertical and diagonal spreads?
Vertical spreads have the same expiration date with different strikes. Diagonal spreads have different expiration dates and usually different strikes. This creates different theta and vega profiles - verticals are directional plays, diagonals are time/volatility plays.
Are diagonal spreads better than vertical spreads?
Neither is inherently better. Vertical spreads are simpler with defined risk/reward, best for directional trades. Diagonal spreads offer more flexibility and can exploit term structure, but are more complex to manage. Choose based on your thesis and complexity tolerance.
Related Strategies
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