Replies to post #23522 on Cycle Trading

[Duma]

After playing around with numbers all morning, I finally figured out what a Diagonal actually is.

If I was putting on a vertical spread I would
buy a long call with a 60% delta which would put me for SPY about $6 ITM
then I would sell a call a few dollars OTM, but not too far to get good TV.

So the plan is for the short call to expire worthless, but if market keep going up that is okay, but profit will be capped at strike price of short call.

The time frame for expirations can be 2wks to 2 months, but they are the same day.

To turn it into a Diagonal, all one has to do is extend the time of the long call out further. What this does is reduces the amount of TV that the long call loses and therefore should increase the profit. Simple and a great idea. But in my mind it is still a vertical with a twist.

So bear in mind that a Diagonal Call is still basically a Vertical spread and it will lose money if market goes to far down. In the Diagonal I am currently playing with, zero profit was at -1%. For a straight vertical, at -1% it lost -1.07.