Put Diagonal Spread

A near put sold against a further-dated put bought at a higher strike: the long contract stands in for a short share position, and the near one is written against it.

Also called Diagonal put spread, Poor man's covered put

Outlook

Bearish

Family

Diagonal

Level

Advanced

Legs

2 legs

Expirations

2 expirations

Opens for

Debit

Maximum profit

Limited

Maximum loss

Limited

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
A	Short	Put 97.5	1	Delta 30
B	Long	Put 107.5	1	Delta 70

What it is

A deep put bought at B in a far expiration and a put sold at A below it in a near one. It is the mirror of the call diagonal, and its common name is the same joke on the other side: a poor man’s covered put.

The far-dated deep put substitutes for a short share position, and the near-dated put is written against it.

The payoff

At expiration

A falling line that flattens below the short strike: the position gains as the underlying falls to A and is capped beyond it, valued at the near expiry.

⛔ Read at the near expiry, with the far put still alive. Above A the sold put expires worthless and the position is the long put; below A the gain flattens.

Maximum loss is the net debit, reached if the underlying rises far enough that the long put loses most of its value.

How it behaves before expiration

Today, before expiration

Today's value is a shallower version of the same falling, flattening curve.

The curve steepens toward the front expiry.

The Greeks

Delta is negative — the long put’s less the short put’s. Gamma is negative near A. Theta is positive while the underlying is above A. Vega is positive.

Where it lives in the volatility environment

The same trade-off as the call diagonal: capital against a substitute that expires. On the put side the comparison is with a short share position, which carries borrow costs and recall risk that a long put does not — see short stock.

What can go wrong

• The substitute expires and has to be rolled.
• A sharp rally costs extrinsic as well as intrinsic value on the long put.
• Early assignment on the short put leaves long shares against a long put.
• The gain below A is capped.
• Two expirations, two liquidity profiles.

Building it in Option Panel

Open Build Strategy and pick Put Diagonal Spread. Long leg first — high delta, far expiration — then the short leg independently in a nearer one.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Call Diagonal Spread — the mirror, and the fuller explanation of the substitute idea.
• Put Calendar Spread — the same two expirations at one strike.
• Short Stock — what the long put is standing in for.