Real Example (July 2025)
A short call diagonal spread involves selling a longer-term call at a lower strike and buying a shorter-term call at a higher strike. This strategy profits from bearish movement and time decay, but carries significant upside risk.
- Stock: XYZ Corp
- Outlook: Moderately bearish
- Setup: Sell 1 XYZ $95 Call (Oct) @ $6.00; Buy 1 XYZ $105 Call (Aug) @ $2.20
- Net Credit: $3.80 ($380 per contract)
- Max Gain: $380 if stock stays below $95
- Max Loss: Unlimited (if stock rallies)
- Risk Note: Margin and monitoring required due to uncovered risk