Double Diagonal Spread Strategy
Learn double diagonals to collect premium from both calls and puts using calendar spreads. Profit from time decay and low volatility in any market.
What is Double Diagonal Spread Strategy?
Double Diagonal Spread Strategy is a neutral strategy combining a call diagonal and a put diagonal, selling near-term options while buying longer-term options on both sides for net credit.
Double diagonals are similar to iron condors but use calendar spreads instead of vertical spreads, benefiting more from theta decay and IV contraction.
TL;DR - Quick Summary
Double Diagonal = Short call calendar + Short put calendar. Sell 30-45 DTE options, buy 60-90 DTE options on both sides. Profit from theta decay if stock stays between strikes. Lower risk than iron condors but requires more management. Best in moderate IV.
What is a Double Diagonal Spread?
A double diagonal spread is an advanced options strategy that combines two diagonal spreads—one on the call side and one on the put side. It's essentially an iron condor with a time component, where the long options have longer expiration dates than the short options.
This structure allows you to collect premium from selling near-term options while using longer-dated options for protection. The strategy profits from time decay, volatility contraction, and the stock staying within a range.
Double diagonals are popular among income traders because they offer high probability of profit, defined risk, and the ability to roll positions efficiently when tested.
Key Characteristics
- ✓ Four legs—two diagonal spreads combined (call diagonal + put diagonal)
- ✓ Different expirations—short options expire sooner than long options
- ✓ Collect credit—premium from short options exceeds cost of long options
- ✓ Profits from time decay—near-term shorts decay faster than long-term longs
- ✓ Defined risk, high probability—similar to iron condors but with time advantages
When to Use a Double Diagonal
1. Neutral Market Outlook
You expect the stock to trade in a range over the next several weeks. Double diagonals profit from sideways movement and are ideal for consolidating markets.
Example: Stock at $100, expecting it to stay between $90-$110 for next 45 days.
2. High Implied Volatility
IV is elevated, providing fat premiums on the short options. After selling the shorts, you expect IV to contract, benefiting both from theta and vega.
Example: IV rank above 60, post-earnings with IV expected to compress.
3. Want to Roll Positions
You plan to actively manage the position by rolling the short options forward each month. The longer-dated long options stay in place while you collect monthly income from shorts.
Example: Sell 30 DTE shorts, roll them every 21 days, keep 90 DTE longs for 3 cycles.
4. More Forgiving Than Iron Condors
The time spread component makes double diagonals less sensitive to price movements compared to same-expiration iron condors. The long options retain value longer, providing more adjustment opportunities.
Example: Stock moves to short strike—long options still have significant time value for adjustments.
5. Consistent Income Strategy
You're building a portfolio strategy focused on monthly income generation with high win rates. Double diagonals offer 65-75% probability of profit with proper management.
Example: Collect $300-500 per month per position with 70% success rate.
How to Set Up a Double Diagonal
Example Setup
Let's set up a double diagonal on a stock trading at $100:
| Position | Strike | Type | Expiration | Premium |
|---|---|---|---|---|
| Call Side: | ||||
| Sell 1 | $105 | Call | 30 DTE | +$2.50 |
| Buy 1 | $110 | Call | 90 DTE | -$4.00 |
| Put Side: | ||||
| Sell 1 | $95 | Put | 30 DTE | +$2.50 |
| Buy 1 | $90 | Put | 90 DTE | -$4.00 |
| Net Credit | +$1.00 ($100) | |||
Position Structure
- • Short strikes: 5-10 points OTM with ~30 delta (30% probability ITM)
- • Long strikes: 5 points further OTM for protection
- • Short expiration: 30 DTE (roll at 21 DTE or 50% profit)
- • Long expiration: 90 DTE (keep for multiple short cycles)
Position Greeks
- • Delta: Near zero (neutral position)
- • Theta: Positive (profit from time decay of short options)
- • Vega: Negative (benefit from IV contraction)
- • Gamma: Slightly negative (position stays neutral over small moves)
Setup Best Practices
- ✓ Short strikes: 25-30 delta for ~70% probability of profit
- ✓ Time spread: 2:1 or 3:1 ratio (90 DTE longs, 30 DTE shorts)
- ✓ Strike width: $5 for stocks under $100, $10 for stocks over $200
- ✓ Collect 10-15% of the spread width as credit
Profit & Loss Scenarios
Scenario 1: Stock Stays in Range (Max Profit)
Stock at $100 when shorts expire
- • Short $105 call expires worthless: +$2.50
- • Short $95 put expires worthless: +$2.50
- • Long options retain significant value (60 DTE remaining)
- • Profit from short decay: ~$5.00 per share = $500
Result: Keep most of the short premium, roll shorts again for next cycle.
Scenario 2: Small Move Toward One Side
Stock at $103 when shorts expire
- • Short $105 call expires worthless: +$2.50
- • Short $95 put expires worthless: +$2.50
- • Long options still valuable
- • Profit: ~$4.50 per share = $450
Result: Still profitable, can roll shorts at same strikes or adjust up.
Scenario 3: Stock at Short Strike
Stock at $105 when shorts expire
- • Short $105 call: $0 (ATM)
- • Short $95 put expires worthless: +$2.50
- • Long $110 call gained value from stock move
- • Small profit or breakeven: ~$0-200
Result: Long options provide cushion—not a loss like iron condor would be.
Scenario 4: Stock Beyond Short Strike (Tested)
Stock at $108 when shorts expire
- • Short $105 call: -$3.00 loss
- • Short $95 put expires worthless: +$2.50
- • Long $110 call gained $4-5 in value
- • Small loss or breakeven: ~$0-100 loss
Result: Long options limit loss—time to adjust or roll the position.
Risk Profile Summary
- • Max profit: Near full credit if shorts expire worthless, then roll
- • Max risk: Width of one spread minus credits received (but rarely realized)
- • Typical profit target: 50-75% of short premium received
- • Probability of profit: 65-75% with proper strike selection
- • Best outcome: Roll shorts 2-3 times using same long options
Managing a Double Diagonal
1. Roll Shorts Every 21-30 Days
This is the core of the strategy. When shorts reach 21 DTE or you've captured 50-75% profit, close them and sell new shorts in the next cycle. Keep the long options in place.
2. Adjust Strikes on Directional Moves
If the stock trends up, roll the entire structure up. If it trends down, roll it down. This keeps you centered on the current price and maintains probability.
3. Extend Long Options
As your long options approach 30-45 DTE, roll them out to 90 DTE again. This maintains the time spread advantage and keeps protection in place.
4. Close Tested Side, Keep Winner
If one side is tested and losing money, close that diagonal spread. Let the winning side run and collect full premium, converting to a single diagonal.
5. Take Profits at 50-75%
Don't wait for shorts to go to zero. Close at 50-75% profit with 7-10 DTE remaining, then roll to next cycle. This reduces risk and increases annual returns.
6. Add Protection if Volatility Spikes
If IV expands dramatically and the stock makes a big move, consider adding extra long options on the tested side for additional protection before rolling.
💡 Rolling Strategy
The power of double diagonals is in the rolling. You can roll the same long options 2-3 times, collecting $200-300 each cycle, for total income of $600-900 per position over 2-3 months.
This is far more profitable than letting an iron condor expire once and starting over.
Double Diagonal vs. Iron Condor vs. Calendar
| Feature | Double Diagonal | Iron Condor | Calendar Spread |
|---|---|---|---|
| Structure | 2 diagonal spreads | 2 vertical spreads (same exp) | 1 time spread (same strike) |
| Expirations | Different (30/90 DTE) | Same | Different |
| Strikes | Different | Different | Same |
| Credit received | Moderate | Moderate | Debit (costs money) |
| Adjustment flexibility | High (roll shorts often) | Medium | Low |
| Risk at expiration | Lower (longs still have value) | Higher (all expire same day) | Moderate |
| Complexity | High | Medium | Low |
| Best for | Active traders, monthly income | High-probability income | Volatility plays, specific price |
Common Mistakes to Avoid
1. Not Rolling the Shorts
The power is in the rolling. If you just let shorts expire and don't roll, you're leaving money on the table and missing the strategy's core advantage.
2. Wrong Time Spread Ratio
Using shorts and longs too close in expiration (like 30/45 DTE) defeats the purpose. Maintain at least 2:1 ratio, preferably 3:1 (30/90 or 21/63).
3. Ignoring Adjustment Opportunities
Double diagonals require active management. If you're not willing to adjust, roll, or close positions, use iron condors instead.
4. Poor Strike Selection
Selling too close to the money (40-50 delta) increases probability of being tested. Stick to 25-30 delta shorts for 70%+ win rate.
5. Letting Long Options Decay Too Much
Don't let your long options get below 30 DTE. Roll them out to 90 DTE again to maintain protection and time spread advantage.
Key Takeaways
- ✓ Combines two diagonal spreads—call diagonal + put diagonal
- ✓ Different expirations—short options expire sooner than long options
- ✓ Roll shorts every 21-30 days using the same long options for multiple cycles
- ✓ More forgiving than iron condors—long options retain value when tested
- ✓ Profits from time decay and IV contraction
- ✓ High probability strategy (65-75%) with proper strike selection
- ✓ Requires active management—not a "set and forget" strategy
- ✓ Capital efficient—collect multiple credits from same long options
- ✓ Best in high IV environments with neutral outlook
- ✓ Advanced strategy—master diagonals and iron condors first
Start Trading Double Diagonals
Use ApexVol's professional tools to analyze, build, and manage double diagonal spreads. Calculate Greeks, visualize P&L across time, and plan your rolling strategy.
Related Options Strategies
Diagonal Spread
Single-sided component of double diagonal.
Iron Condor
Similar neutral approach using vertical spreads.
Calendar Spread
Foundation strategy using different expirations.
Understanding related strategies helps you choose the best approach for your market outlook and risk tolerance. Each strategy has unique characteristics that make it suitable for different market conditions.