September Webinar Key Takeaways: What Are Calendar & Diagonal Spreads?

This month, OIC explored calendar spreads (time spreads using the same strike, different expirations) and diagonal spreads (different strikes, different expirations). Both strategies leverage differences in option decay (Theta) and volatility sensitivity (Vega), but each carries unique risks, costs, and management requirements. We examined when these strategies may be most effective, managing positions over time, and what to watch for in terms of assignment, expiration, and market conditions.
 

What We Covered:

Calendar Spreads

Calendar Spreads provide defined risk with flexible directional outlooks.  

• Constructed with long and short options on the same strike, with different expirations. 
• Can be effective in low volatility environments due to differences in Theta, Vega, and Gamma. 
• Maximum loss limited to the net debit paid. 
• Can express neutral, bullish, or bearish views depending on strike selection. 
• Expiration management is critical—short leg assignment risk must be monitored. 

Diagonal Spreads

Diagonal Spreads offer customized exposure, but demand more hands-on management.  

• Combine elements of vertical spreads and calendars, using different strikes and expirations. 
• Key sensitivities: balancing Theta decay and Vega exposure across maturities. 
• Active management can involve rolling one or both legs to reduce cost basis or adjust risk. 
• Carry assignment and exercise risks with American-style options. 
• Require active monitoring, not a passive “set and forget” trade. 

Both Calendar Spreads and Diagonal Spreads hinge on time decay and volatility forecasts, making them valuable tools for traders who understand Greeks and expiration risk.

Keep Learning:     

Key Moments from Balancing Risk and Potential Reward With Option Calendar Spreads  
Key Moments from Diagonal Spreads: Analyzing Long Term Premium Income Potential  
 

Meet OIC instructor Mat Cashman:  

Mat Cashman

Mat is a Financial Services professional and currently an instructor at The Options Industry Council. He brings 20 years of experience trading in all segments of the Derivatives market. He started his career on the trading floor of the Chicago Board of Options Exchange in 2000 and has since traded multiple asset classes across a wide array of exchanges including the CME, CBOT, and the Eurex Exchange