Diagonal Call option strategy
Diagonal Call is a Horizontal Spread. It is a variation of covered call wherein instead on owning stock or future , one buys next expiry lower strike call and sell near expiry higher strike call. Outlook is Bullish.
Payoff at the near expiry
Nifty, lot size 65 · Nifty future 22,650 · 6 Oct 2026Legs
| Action | Option | Expiry | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|---|
| SELL | OTM Call | 6 Oct | 22,700 | 1 | 65 | ₹112.10 |
| BUY | ITM Call | 13 Oct | 22,600 | 1 | 65 | ₹226.67 |
How it works
- Sell 1 OTM call at the 22,700 strike for ₹112.10 in the near expiry, collecting the premium.
- Buy 1 ITM call at the 22,600 strike for ₹226.67 in the next expiry, paying the premium.
- You pay a net ₹7,447 upfront for the position. This is the most you can lose.
Below 22,528 you lose, up to ₹7,447.
Between 22,528 and 23,116 you profit, up to ₹5,603.
Above 23,116 you lose, up to ₹947.
Set-up: Buy long term lower strike call and sell nearby higher strike call.
What happens if Nifty moves
Profit or loss at the near expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,300 | −6% | −₹7,446 |
| 21,950 | −3% | −₹7,087 |
| 22,400 | −1% | −₹2,994 |
| 22,650 | Unchanged | +₹3,901 |
| 22,900 | +1% | +₹1,957 |
| 23,350 | +3% | −₹732 |
| 24,000 | +6% | −₹946 |
How the Greeks affect it
When to use
Diagonal call needs to be executed when we have bullish view for long period. However objective is to generate income against long term option by selling near term option thereby gaining premium and reducing cost of investment.
- Generate monthly income.
- Can profit from range bound stocks and make a higher yield than with a Covered Call or Naked Put.
Things to watch
- Capped upside if the stock rises.
- Can lose on upside if the stock rises significantly.
- High yield does not necessarily mean a profitable or high probability profitable trade. Strike selection between buy call and sell call is very important.
Diagonal Call: questions
What is a Diagonal Call strategy?
Diagonal Call is a Horizontal Spread. It is a variation of covered call wherein instead on owning stock or future , one buys next expiry lower strike call and sell near expiry higher strike call. Outlook is Bullish.
When should you use a Diagonal Call?
Diagonal call needs to be executed when we have bullish view for long period. However objective is to generate income against long term option by selling near term option thereby gaining premium and reducing cost of investment.
How do you set up a Diagonal Call?
Buy long term lower strike call and sell nearby higher strike call.
What is the maximum profit of a Diagonal Call?
Maximum reward is Value of long call option on expiration of short call when the stock trades near the sell call strike less initial outflow to built the strategy.
What is the maximum loss of a Diagonal Call?
Maximum risk on the trade is limited to net debit to built the strategy.
What is the breakeven of a Diagonal Call?
With Nifty at 22,650, the example on this page breaks even at 22,528 and 23,116 at expiry.