Double Diagonal

Not always, but usually. If front options are very expensive (high IV) relative to back options, you may receive a net credit. However, net debit is more common because back-month options have more time value. Either can be profitable - the key is the decay differential.

The key difference is expirations. An iron condor has all four legs in the same expiration with a clear max profit/loss at expiration. A double diagonal has front-month shorts and back-month longs. This allows for multiple roll cycles and benefits from time decay differential.

If front options expire ITM, you have a loss on the front spread. However, the back-month long options provide protection and limit your loss. You should typically manage ITM front options before expiration to avoid assignment (for American-style) or settle the loss.

Generally 2-3 roll cycles are practical. After that, the back options have lost too much time value to provide adequate protection. Also, each roll has transaction costs that eat into profits. Track your cumulative P&L across all rolls.

For FTSE double diagonals, minimum £30,000 is recommended. For SPX, approximately $75,000. For SPY, approximately $15,000. The strategy requires adequate capital for proper position sizing given the complex risk profile.

Roll if: (1) Front captured profit, (2) Back has 30+ DTE remaining, (3) Market still range-bound, (4) Haven't exceeded max roll count. Close if: (1) Position tested/losing, (2) Back has <21 DTE, (3) Market conditions changed, (4) Want to take profits and exit.

Term structure significantly impacts pricing and profitability. In backwardation (front IV > back), you sell expensive front and buy cheap back - favorable. In steep contango (back IV >> front), back options are expensive - less favorable. Track IV at your specific strikes.

Yes, typically. If the underlying has moved, roll to new strikes that maintain 15-20 delta relative to current price. If price is unchanged, you can use the same strikes. The goal is to keep short strikes adequately OTM for the new front month.

Manage gamma by: (1) Rolling or closing front before gamma spikes (5+ DTE), (2) Using wider strikes if concerned, (3) Not holding front through expiration if tested, (4) Monitoring delta and adjusting if it drifts too far. Pre-emptive action is key.

Narrow offset (25 points): More net credit typically, but less protection if price moves through short strikes. Wide offset (75+ points): Less credit (or higher debit), but more protection. Choose based on conviction: narrow for high conviction, wide for more safety.

Optimize by testing different parameter combinations: front DTE (7/14/21), back DTE (45/60/75), strike placement (delta levels), and diagonal width. Calculate net theta / |net gamma| for each configuration. Higher ratios indicate more efficient decay capture per unit of gamma risk. Backtest to validate.

Analyze IV at your specific strikes across both expirations. Look for: (1) Front shorts at higher IV than their delta would suggest (skew capture), (2) Back longs at lower IV (term structure capture), (3) Favorable IV spread between front and back at your strikes. Use this to select strikes that are relatively cheap to buy and expensive to sell.

Effective systematic roll rules: (1) Roll when front reaches 75% profit AND back has 30+ DTE, (2) Roll at 3-5 DTE if front profitable, (3) Maximum 3 rolls per back position, (4) Adjust strikes to 16 delta on new front, (5) Abort rolling if position delta exceeds ±0.30 or term structure inverts significantly.

Hedge portfolio gamma by: (1) Buying long straddles/strangles on a portion of exposure, (2) Maintaining long gamma positions in other parts of portfolio, (3) Sizing down as aggregate gamma increases, (4) Using dynamic delta hedging. Calculate total portfolio gamma and determine acceptable levels.

Calculate implied forward volatility between your expirations from the term structure. If forward vol is much higher than realized vol expectations, the diagonal may be expensive. If forward vol is lower, the diagonal is favorably priced. This helps assess whether the back options are fairly priced given expected volatility.