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Diagonal spread calculator
a calendar that leans somewhere

A diagonal is a calendar with the strikes pulled apart: still short the near-dated option and long the further-dated one, but now with a directional tilt as well as a time one. As with a calendar, the surviving back leg has to be modelled rather than read off a payoff line.

Outlook: Mildly directional, with volatility holding up

Best case
—
near the short strike
Worst case
—
across the sampled range
Breakevens
—
edges of the profitable band
Net debit
—
paid to open
Your diagonal
Different strikes and different expiries. Premiums per share.
life left in the back leg
the near-dated option you sell
the further-dated option you buy
% — the assumption that decides everything
Profit at front expiry Loss at front expiry Breakeven Strikes & spot

How a diagonal differs from a calendar

Both are short a near-dated option and long a further-dated one, and in both the back leg survives the front expiry and has to be priced rather than settled. The difference is the strikes. A calendar keeps them equal and is purely a bet on time and volatility; a diagonal separates them and adds a directional lean.

At FRONT expiry, per contract: Front leg (expiring) = premium collected − max(0, intrinsic at short strike) Back leg (surviving) = BlackScholes(price, LONG strike, days left, IV, rate) − premium paid P/L = (front + back) × 100 × contracts

With calls, selling a strike above the one you own is the common shape: it behaves like a covered call where a long-dated option stands in for the shares, which is why it is often called a poor man's covered call. It costs far less than 100 shares and caps risk at the debit, but the long option decays and the shares would not.

Same volatility exposure as a calendar. You are net long vega on the back month, so a fall in implied volatility hurts even when price behaves. The directional tilt is an addition to that risk, not a replacement for it.

Reading the shape

Frequently asked questions

What is a poor man's covered call?
A call diagonal used as a substitute for a covered call: instead of owning 100 shares and selling a call against them, you buy a long-dated in-the-money call as the stock proxy and sell a shorter-dated call above it. It ties up far less capital and caps the downside at what you paid, but the long call decays while shares would not, and it pays no dividends.
What is the maximum loss on a diagonal spread?
Approximately the net debit paid, provided the long leg is further dated and at a strike that keeps it worth at least as much as the short. It is approximate because the back leg still holds time value at front expiry, and what that is worth depends on implied volatility then. Widening the strikes or misjudging volatility can push the real worst case past the debit.
Which strikes should I choose?
The gap sets how directional the position is. Strikes close together behave much like a calendar — mostly a time and volatility trade. Pulling the short strike further away adds directional upside but collects less premium, so the position costs more and needs the move to actually happen. Start by matching the gap to a target you would genuinely be happy to be assigned at.
Why did my diagonal lose money when the stock moved my way?
Usually implied volatility. The back-month leg is long vega, so an IV decline cuts its value even on a favourable move. The other common cause is the move overshooting your short strike, where the front leg's loss grows faster than the back leg's gain until expiry passes.
How accurate is this calculator?
As accurate as the volatility figure you supply. The front leg is exact because it expires; the back leg is a Black-Scholes estimate. Real prices differ from the model, especially where the strikes sit far from the money and skew matters. Use the curve to understand the shape and the sensitivities, not to predict a settlement price.
Are commissions included?
No, every figure is gross. Diagonals are frequently rolled — closing the front leg and selling another — so commission drag accumulates faster than on a position you open and hold. Weigh your per-contract rate against the premium collected on each roll, not just against the opening debit.

Model this against a live chain

GreeksView reads real implied volatility per expiry and strike, so the back-month assumption comes from the market instead of a text box.

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