Like Calendar but with different strikes. The best known: Poor Man's Covered Call, a monthly LEAPS + Short Call.
The structure
A Diagonal Spread blends a calendar and a vertical: buy a longer-dated contract at one strike and sell a nearer-dated one at a different strike. The most common form buys a far-dated contract in the money and sells a near-dated one out of the money above it, so the combination acts like a covered call without owning the stock.
The capital-light alternative to a covered call
Instead of buying a hundred shares, you buy a far-dated, deep Delta contract for a fraction of the price and sell near-dated contracts against it month after month. A smaller amount of capital collects roughly the same premium income, in exchange for sensitivity to implied volatility and an expiration that eventually arrives.
Maximum profit and loss
Maximum loss is the net amount paid. Profit builds from the successive premiums of the short near leg plus what the far leg gains from direction. There is no explicit cap as long as you can keep rolling, but every cycle redraws its numbers.
Hypothetical example
A stock at $100: buy a nine-month call at a $85 strike for $19, and sell a one-month call at a $105 strike for $1.20. Nine months of repeated selling may recover half the cost, and the far leg moves with the stock all the way.
Common mistake
Picking a far leg with a weak Delta to save money: the combination loses its covered-call character and becomes a double bet on direction and volatility together. The depth of Delta in the far leg is what makes a diagonal a diagonal.
What it takes from both
A diagonal spread combines different strikes (a directional bet) and different expirations (harvesting the difference in decay) in one structure. It profits from a moderate move and from the passing of time together. The price is management complexity: two legs with two expirations mean different Vega exposure in each, so moving volatility can upend the math.
Where to see it on the platform
The calculator prices each leg separately, and the time decay curve shows why time is bought in bulk and sold in pieces. That is the spirit of this spread.
The structure calculator builds it and draws its limits, and the strategy guide suggests it for a moderate, extended forecast.
