26. Diagonal Spreads
Chung Mee: “Speed is important in business. Time is money.”
Lawrence Bourne III: “You said opium was money.”
Chung Mee: “Money is Money.”
Lawrence Bourne III: “Well then, what is time again?”
—From Volunteers (1985)
Although Volunteers is one of Tom Hanks and John Candy’s less popular movies, the quote is spot on because in options, time is money. The diagonal spread tactic is completely based off the concept that time depreciates at different rates along the expiration cycle.
Diagonal spreads are very similar to vertical spreads, except that the monthly expiration and strike prices are different. This extra dimension significantly increases the number of iterations we can add to the spread list. The good news is that we ...