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Basics

Double Diagonal Option Strategy

Written by admin
Fri Jan 20 2023
Double Diagonal Option Strategy - MarketXLS
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Double Diagonal Option Strategy - MarketXLS

What is this option strategy?

The Double Diagonal Option Strategy is a complex options strategy that combines the Bear Call Spread, Bull Put Spread, and Bull Call Spread. It’s a multi-positional approach that allows for increased profits in bull and bear markets. The strategy involves selling a lower strike call option and buying a higher strike call option at one expiration date, and selling a higher strike put option and buying a lower strike put option at another expiration date.

Is this a Bullish or a Bearish strategy?

The Double Diagonal Option Strategy can be applied to both bullish and bearish markets, as it combines both bullish and bearish options strategies.

Is this a beginner or an advanced option strategy?

The Double Diagonal Option Strategy is an advanced option strategy and should only be used by experienced option traders.

In what situation will I use this strategy?

The Double Diagonal Option Strategy is best used when there is a significant move or trend in either direction (up or down), but there is no clear direction. This strategy also works well in extreme market conditions when there is significant volatility or multiple support and resistance levels, as it allows for increased profits.

How is this strategy affected by the Greeks?

The Double Diagonal Option Strategy is affected by the Greeks (Delta, Gamma, Theta, and Vega) in the same way as the spreads that it is composed of. It is important to consider the effects of each of these when determining the ratio of options to buy/write, strike selection, and expirations.

How do you adjust this strategy when the trade goes bad?

When the trade goes bad, the most common adjustment of the Double Diagonal Option Strategy is to roll the position out and reset at lower or higher strikes. This strategy involves the simultaneous rolling of a variety of options in order to reset the positions and mop up any unfavorable theta.

How do I know when to exit this strategy?

The Double Diagonal Option Strategy should be exited when the protective put and call options reach the profit targets or when the spread becomes too wide for you to realistically achieve your desired profits. It is also important to exit this strategy before expiration if the underlying stock’s price becomes too close to the strike price of any of the options, as it may result in the loss of capital.

Describe an example of this strategy and give me the p&l data in a python dictionary to create a chart. Use MSFT as example and assume current price is 150, On x axis I need the price and on y axis I need the profit.

Let’s assume that MSFT is trading at $150. We can create a Double Diagonal Option Strategy by selling 1 MSFT May 145 Call and buying 1 MSFT April 155 Call and selling 1 MSFT April 140 Put and buying 1 MSFT May 130 Put. The maximum profit of the strategy is $5 and the maximum loss is $10.

The Payoff and Profit & Loss chart of the strategy is given below:

data = {
‘145 Call (Sell)’ : {150:-5, 160:-10, 170: -10},
‘155 Call (Buy)’: {150:0, 160:5, 170:10},
‘140 Put (Sell)’: {150:-5, 140:-10, 130: -10},
‘130 Put (Buy)’: {150:0, 140:5, 130:10},
}

In the end add a paragraph about MarketXLS and tell how it can help

The Double Diagonal Option Strategy is used by experienced traders and can be difficult to follow as well as adjust and exit. MarketXLS is a great tool to help traders analyze the performance of their options strategies. It provides detailed options analysis, including option payoffs and Profit & Loss graphs, to help traders analyze and adjust their strategies. MarketXLS also offers alerts so traders can keep track of their trades and easily exit when their profit or loss targets are reached.

Here are some templates that you can use to create your own models

Search for all Templates here: https://marketxls.com/templates/

Relevant blogs that you can read to learn more about the topic

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