Moderately directional - expecting gradual move toward short strike
| Strategy Type | Diagonal Spread / Modified Calendar with Directional Bias |
| Market Outlook | Moderately directional - expecting gradual move toward short strike |
| Risk Profile | Defined Risk (Limited to net debit paid) |
| Reward Profile | Limited but high ROI potential if price reaches short strike at front expiry |
| Time Horizon | Short to Medium-term (Front month expires, back month held or sold) |
| Iv Environment | Best when back-month IV low; benefits from IV rise in back month |
| Breakeven | Complex - approximately long strike + debit for call diagonal |
| Primary Instruments | FTSE 100 Index options, UK large cap stock options, US-listed UK ADR options |
| Mas Compliance | MAS regulated brokers required; options trading approval needed |
| Trading Hours | FTSE options: London hours 4 PM - 12:30 AM SGT; US ADRs: US hours |
| Contract Size | FTSE 100 options: £10 per point; Stock options: 100 shares typically |
| Settlement | FTSE options: Cash settled; Stock options: Physical delivery |
| Tax Treatment | No capital gains tax for individuals in Singapore |
| Margin Requirements | Defined risk spread; margin = debit paid |
| Cdp Account | Not required for foreign options; custody with broker |
| Singapore Relevance | Diagonal spreads allow directional views on UK assets with defined risk and time decay benefits |
Different strikes AND different expirations. Buy back-month option closer to money, sell front-month option further OTM. Combines time spread (theta) with directional bias (delta). Call diagonal = bullish, Put diagonal = bearish.
Calendar uses same strike (neutral). Diagonal uses different strikes (directional). Diagonal has net delta exposure; calendar is delta neutral. Both benefit from theta and are long vega.
The net debit paid (long cost minus short credit). Occurs if price moves strongly against direction and both options lose value. Defined risk strategy.
When you have moderately directional view, expect gradual move (not explosive), IV is low to moderate (long vega benefits), and want theta income alongside direction.
Price rises (calls) or falls (puts) to short strike by front expiration. Front expires worthless, back month is now ATM with significant value. Maximum profit zone.
Poor Man's Covered Call. Use deep ITM LEAP (80+ delta, 12+ months) as stock replacement. Sell short-term OTM calls monthly. Capital efficient (fraction of stock cost), defined risk, similar income profile to covered calls.
When front month reaches 7-10 DTE. Ideally roll for credit. Roll to same strike to continue, different strike to adjust. If can't roll for credit and position losing, consider closing.
Based on expected move and risk tolerance. Narrow (25-50 pts): Lower cost, less room. Standard (75-100 pts): Balanced. Wide (100+ pts): Higher cost, more room. Target debit < 50% of width.
Your profit is capped but still positive. Options: A) Roll short up/out for more room. B) Close entire position at profit. C) Close short, hold long for pure directional. Match action to continued outlook.
Long vega (back month has more vega). IV increase helps. But less vega than calendar due to different strikes. Enter when IV low, benefit from rise.
Diversify across 5-10 positions, different underlyings/sectors. Track aggregate delta. Roll shorts monthly for 2-4% income. Manage LEAPs (roll when <6 months left). Max 5-10% per position, 30-50% total PMCC.
Selling 2+ shorts against 1 long. Higher income but creates uncovered exposure. Use in high IV when premium rich. Requires careful management - naked exposure if both shorts breached. Advanced strategy.
Test: ±10% price move, 30% IV collapse, combined scenarios. Calculate P&L under each. Ensure max loss within tolerance. Adjust position sizes or add hedges if stress losses too high.
Allocate 15-25% to diagonals for directional exposure. Balance with ICs (20-30% for neutral income), calendars (10-15% for vol exposure). Adjust allocation based on market regime and IV levels.
Double diagonal (call + put), diagonal butterfly (diagonal + butterfly), diagonal ladder (multiple shorts), ratio diagonals. Use for specific views or enhanced income. Complexity adds cost and management burden - use judiciously.
Full guided lessons, quizzes, and a complete strategy library for the Singapore market. One-time purchase. No subscription, ever.
Get Singapore access →