The Double Calendar vs. The Double Diagonal Option Strategy

The Double Calendar Spread and the Double Diagonal Spread are two popular option trading strategies with the more advanced option trader. These two trades, while similar, have distinct differences. Let’s define these strategies and see how each can be used to your advantage.

The Double Calendar Spread is an offshoot of the very popular calendar (time) spread. In a normal calendar spread you sell and buy a call with the same strike price, but the call you buy will have a later expiration date than the call you sell.

With a Double Calendar Spread you buy a calendar with a strike price below the market and another with a strike price above where the market is trading.

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By getting above and below you widen your trade’s risk range by making more room for the price to move and still keep the trade profitable. For example, if the SPX is trading at 2100 you might buy the 2070 put calendar and the 2130 call calendar.

Of course, this is all done in the same short month and the same long months (for instance, selling March and buying April).

Benefits for Your Trade

The Double Calendar trade is long Vega— meaning your trade will benefit if the net Vega of the options in your position rises and your trade will suffer if the Vega falls. You can widen or narrow the width between your two calendars based on what you think price movement may be.

The Double Calendar trade is best utilized whenever the IV of the underlying is in the lower range of the last 3 to 6 months.

The Double Diagonal also involves selling options in a near expiration and then buying options in a further out expiration. With the Double Diagonal though you buy options that are higher on the call side in the further out expiration than your near option strike and lower on the put side then your near option strike option.

Thus the strikes are diagonal to one another on each side.

Double Diagonal vs. Double Calendar

The Double Diagonal trade is generally set up wider than the strikes will be in a Double Calendar. It will still usually be long Vega as a strategy though. Of note with a Double Diagonal: the closer your long options are to your short options in strike price the longer the Vega of the position will be.

With the trade being diagonal on each side though you will be less long Vega then you would be with a Double Calendar.

The Double Diagonal works best in periods of lower volatility but it is less susceptible to volatility moves than the Double Calendar.

Which One are You More Comfortable with?

The current volatility environment of the market makes both of these trades attractive. If you are more comfortable with being longer Vega, utilize the Double Calendar. If you would like a little more width to your trade and room for the price to be able to move, then the Double Diagonal may be your better choice.

You can manipulate the width of both of these trades to suit your price opinions.