CHAPTER 13
Diagonal Spreads
We introduced the concepts behind horizontal spreads with a real estate investing story from Shawn's family. We'll continue this theme to explain the premise for the diagonal spread and how it can become one of the primary strategies in your trading portfolio.
By the time I was a teenager, we had several houses in the family portfolio. They were all rental properties and that meant any time there was a problem, like a leaky roof or floor that needed to be retiled, my brother and I were helping Dad fix things. When the house wasn't rented, we were financially under pressure because the properties were not paying for themselves while they were vacant (lots of meatloaf and leftovers for dinner).
One day Mom and Dad told us we were going to the mountains for a summer trip and staying at a cabin. As teenagers, we didn't ask whose it was or where it was, we were just happy to be going on vacation. We stayed at a nice two-story cabin that we had assumed our parents had rented for a few days. Over dinner Mom and Dad surprised us and announced that we were going to buy the cabin if we all liked it. Erik and I were very excited to know that this cabin would soon be ours. We dreamed of having our own cabin—skiing in the winter and hiking and fishing all summer!
My parents then explained to us that we wouldn't have the use of it all the time. The plan was to buy the cabin and then rent it out during the high season and on holidays to pay for the monthly mortgage. ...
