Long Diagonal Put Spread
Sell a near-dated OTM put, buy a longer-dated ITM put. The bearish version of the long diagonal, with positive theta.
Profit / Loss Diagram
Long Diagonal Put at the short expiration
What is this strategy?
The Long Diagonal Put Spread is the bearish version of the diagonal. Construction: sell 1 near-dated OTM put, buy 1 longer-dated ITM put. It combines positive theta with a moderate bearish lean.
Functionally similar to the Long Diagonal Call but positioned for a decline. The long ITM back-month put acts as a short-stock substitute with high negative delta, while the short OTM front-month put generates theta.
Useful when you expect the underlying to drift down toward the short strike. Risk is defined at the debit.
Construction
| Action | Instrument | Strike | Expiration | Example |
|---|---|---|---|---|
| SELL | 1 Put | OTM (lower) | Front (30 DTE) | -1 SPY May 440 Put |
| BUY | 1 Put | ITM (higher) | Back (90 DTE) | +1 SPY Jul 460 Put |
Example
SPY at $450, moderately bearish outlook over 60 days. Long Diagonal Put 440/460.
- Short May 440 Put +$200 premium received
- Long Jul 460 Put −$1,500 premium paid
- Net Debit $1,300
- Expected Gain (if SPY = $440 at the May expiration) +$700 to $900 (the July put retains $2,000-2,200 and the May put expires worthless)
- Maximum Loss $1,300 (the debit) if SPY rallies and both puts expire worthless
The Greeks
Net negative delta.
Same as the Long Diagonal Call.
Same.
Same.
Position Management
- 01 Same as the Long Diagonal Call Close at the short expiration, with the option of rolling.