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Diagonal Call
oscillateDiagonal Call is a Horizontal Spread. It is a variation of covered call wherein instead on owning stock or future , one buys next expiry lower strike call and sell near expiry higher strike call. Outlook is Bullish
Example:
| Instrument | Qty | Price |
|---|---|---|
| SELL NIFTY 30-Jun-26 25600 CE | 65 | 0.75 |
| BUY NIFTY 07-Jul-26 22600 CE | 65 | 1157.1 |
When To Execute?
Diagonal call needs to be executed when we have bullish view for long period. However objective is to generate income against long term option by selling near term option thereby gaining premium and reducing cost of investment
Trade
Buy long term lower strike call and sell nearby higher strike call.
Advantages
Generate monthly income
Can profit from range bound stocks and make a higher yield than with a Covered Call or Naked Put
Disadvantages
Capped upside if the stock rises
Can lose on upside if the stock rises significantly
High yield does not necessarily mean a profitable or high probability profitable trade. Strike selection between buy call and sell call is very important
Maximum Profit
Maximum reward is Value of long call option on expiration of short call when the stock trades near the sell call strike less initial outflow to built the strategy
Maximum Loss
Maximum risk on the trade is limited to net debit to built the strategy