Snapshot
Legs
Buy 1 Long-Term Higher-Strike Put + Sell 1 Short-Term Lower-Strike Put
Outlook
Moderately Bearish
Max profit
Occurs near short put strike at short-term expiration (Variable)
Max Loss
Net debit paid
A long put diagonal option strategy involves buying a longer-term put option at a higher strike price and selling a shorter-term put option at a lower strike price. This setup requires paying a net debit upfront. Traders use this strategy when they hold a moderately bearish outlook over time, collecting income from the short-term option while protecting their long-term position.
The maximum profit occurs if the stock price drops to the lower strike price right when the short-term option expires. The maximum loss is limited to the initial net debit paid if the stock surges upward and both options expire without value.
Example
Stock
$100
Trade
- Buy 90-day $105 Put for $8.00
- Sell 30-day $95 Put for $1.00
→ $7.00 debit ($700)
Breakeven
~$100.25 (Upside only)
Outcomes
- Stock near $95 at 30 days: ~$385 Peak Profit
- Stock well below $95: Profit Continues (~$300)
- Stock far above $105: Loss, up to the -$700 debit