Put Diagonal Spread
Description
Buying a longer-dated put at a higher strike and selling a near-term put at a lower strike, combining a calendar's time-decay edge with a bearish directional tilt.
Setup
- Buy one put at a higher strike, a later expiry.
- Sell one put at a lower strike, near-term expiry.
Context
Used when a gradual decline is expected, letting the near-term short put fund part of the cost of the longer-dated long put.
Risk Profile
Maximum loss is the net debit paid. Maximum gain depends on both legs' remaining value if the underlying sits at the short strike at the near-term expiry, and is larger than a same-strike calendar thanks to the directional tilt.
Pros
- Lower cost than an outright longer-dated put.
- Directional tilt gives it a clearer edge than a flat calendar.
- Short near-term put generates income against the long position.
Cons
- More moving parts than a single-expiry spread, harder to price and manage.
- Needs the move to happen gradually rather than all at once before the near-term expiry.
Effect of Time
Time decay generally helps, since the near-term short put decays faster than the longer-dated long put.
Effect of Volatility
A rise in implied volatility in the back-month option increases the position's value.
Look-Alike Strategies
Live Structure
| Position | Right | Ratio | Strike | Expiry | Premium | Fill Price | Est. Fee |
|---|---|---|---|---|---|---|---|
| Long | Put | 1 | $85500.0000 | 25 Sep 2026 | $1268.7621 | $1353.3462 | $25.3752 |
| Short | Put | 1 | $84000.0000 | 24 Sep 2026 | $76.0861 | $59.1781 | $9.5108 |
Estimated Cost to Assemble
An estimate of what entering this structure right now would really cost: filling every leg by crossing the spread (the ask when buying, the bid when selling) instead of at the mid-price, plus an estimated exchange fee. Real fees and fills can differ from this estimate.
Payoff & Greeks vs. Underlying Price
The Greeks curves are a Black-Scholes model using each leg's current implied volatility, holding time to expiry fixed -- not live exchange data at every price, which only exists at the current price (dashed line).
Payoff at Expiration
This structure's value and profit/loss at expiration, at a handful of specific prices: every leg's strike, every breakeven, the current spot, and the chart's own range.
| Underlying Price | Value at Expiration | Profit / Loss | Return on Cost |
|---|---|---|---|
| $82500.0000 | $1500.0000 | $307.3240 | +25.8% |
| $84000.0000 | $1500.0000 | $307.3240 | +25.8% |
| $84307.3240 breakeven | $1192.6760 | $0.0000 | +0.0% |
| $84540.1100 current | $959.8900 | -$232.7860 | -19.5% |
| $85500.0000 | $0.0000 | -$1192.6760 | -100.0% |
| $87000.0000 | $0.0000 | -$1192.6760 | -100.0% |