Double Diagonal Spread: Range-Bound Income 2026
A double diagonal combines two diagonal spreads — a bull put diagonal and a bear call diagonal — to profit from a stock staying in a range while time decay works in your favor. It's like an iron condor with different expirations, giving you more flexibility to manage each side independently.
What Is a Double Diagonal?
A double diagonal spread consists of four legs: sell a near-term OTM put, buy a longer-term further-OTM put, sell a near-term OTM call, and buy a longer-term further-OTM call. Essentially, you're running two diagonal spreads simultaneously — one on the put side and one on the call side.
The strategy profits from two forces: the stock staying within a range (between your short strikes) and time decay eroding the near-term short options faster than the longer-term long options. It's similar to an iron condor in its range-bound thesis, but the different expirations provide the time decay differential that diagonals are known for.
The big advantage over a standard iron condor is flexibility. When the front-month options expire, you still hold the longer-dated wings and can sell new short options against them — essentially "rolling" the strategy forward with potentially more premium collected over time.
Example: Stock XYZ is at $100. You sell a 30-day $95 put for $2.00, buy a 60-day $90 put for $1.25, sell a 30-day $105 call for $2.00, and buy a 60-day $110 call for $1.25. Net credit: ($2.00 + $2.00) - ($1.25 + $1.25) = $1.50 ($150). If XYZ stays between $95-$105 for 30 days, the short options decay faster than the long options, and the spread widens in your favor. At front-month expiration, you can sell new 30-day options against the remaining 30-day long options.
When to Use It
- When you expect a stock to trade in a defined range for the near term
- When you want an iron condor-like payoff but with more management flexibility
- When IV term structure is normal (near-term IV similar to longer-term IV)
- When you want to potentially collect premium from multiple short-option cycles
- As a portfolio income strategy on stable, range-bound stocks or ETFs
How to Set It Up
1. Sell 1 near-term OTM put (20-30 DTE, 20-30 delta) 2. Buy 1 longer-term further-OTM put (45-60 DTE, 10-15 delta) 3. Sell 1 near-term OTM call (20-30 DTE, 20-30 delta) 4. Buy 1 longer-term further-OTM call (45-60 DTE, 10-15 delta) 5. Aim for a net credit on the overall position 6. At front-month expiration: close expired short legs, sell new short options against remaining long options 7. Close the entire position at 25-50% profit or if the stock breaks through either short strike
Risk & Reward
Max profit: Varies — depends on how many short-option cycles you sell before the long options expire. First cycle max is approximately the net credit received. | Max loss: Defined by the width between your long and short strikes minus credit received. In the example: approximately $3.50 ($350) per side. | Breakeven: Short put strike - net credit on the downside; Short call strike + net credit on the upside. In the example: $93.50 and $106.50.
Best Brokers for This Strategy
Tastytrade is the best platform for double diagonals — its rolling tools make it easy to replace expired short legs, and the position analysis clearly shows the Greeks of each component. IBKR has the best fills on four-leg orders and the lowest commissions for frequent rollers. thinkorswim/Schwab offers the most detailed risk analysis for multi-expiration spreads. See our best options brokers guide.
Not financial advice. Always do your own research.
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