Ultimate Guide To Trading A Put Diagonal Spread

You can think put diagonals as a two-part strategy. Thats because it's basically a cross between a long calendar spread and a short credit put spread.

Having features of both basic strategies, this more advanced strategy profits from both a decay in the option prices differential between contract months and the upward directional move in the underlying stock.

For this strategy you'll first sell a put OTM in the front month and then buy a further OTM put in the back month. This gives your strategy the skew higher because you have an embedded credit spread.