A diagonal calendar spread (or a calendar diagonal spread) which constitutes an option trading strategy based on the selling of a near-month out-of-the-money calland the buying of a far-month at-the-money call at different strike prices.
This strategy aims to profit when the underlying remains within a very tight range. It allows investors to tap into maximum profit potential when the underlying breaks out moderately upside. The spread capitalizes on the difference between the time values of options with different expiration. The long-term call option enables the holder to roll forward for many months to come such that the cost of holding the long-term call options is eventually reduced or eliminated. Being a debit spread, the diagonal calendar call spread requires no margin, while its losses, if any, are limited to the net debit amount.
The diagonal calendar call spread is alternatively called a call diagonal calendar spread, a calendar diagonal call spread and a diagonal calendar call spread.
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