Diagonal Put option strategy
Diagonal Put is a Horizontal Spread. The aim is to create a net credit trade by buying the longer term OTM put options and selling the ITM put options while creating the same risk profile as a Diagonal Call Spread.
Payoff at the near expiry
Nifty, lot size 65 · Nifty future 23,104 · 19 Oct 2026Legs
| Action | Option | Expiry | Strike | Lots | Qty | Premium |
|---|---|---|---|---|---|---|
| SELL | ITM Put | 19 Oct | 23,150 | 1 | 65 | ₹112.88 |
| BUY | OTM Put | 27 Oct | 23,050 | 1 | 65 | ₹146.28 |
How it works
- Sell 1 ITM put at the 23,150 strike for ₹112.88 in the near expiry, collecting the premium.
- Buy 1 OTM put at the 23,050 strike for ₹146.28 in the next expiry, paying the premium.
- You pay a net ₹2,171 upfront for the position. Your maximum loss is ₹8,671.
Below 23,021 you lose, up to ₹8,671.
Between 23,021 and 23,409 you profit, up to ₹4,528.
Above 23,409 you lose, up to ₹2,171.
Set-up: Buy long term lower strike Put and sell nearby higher strike Put.
What happens if Nifty moves
Profit or loss at the near expiry| Nifty at expiry | Move | Profit / loss |
|---|---|---|
| 21,700 | −6% | −₹8,671 |
| 22,400 | −3% | −₹8,317 |
| 22,850 | −1% | −₹4,246 |
| 23,100 | Unchanged | +₹2,644 |
| 23,350 | +1% | +₹709 |
| 23,800 | +3% | −₹1,961 |
| 24,500 | +6% | −₹2,171 |
How the Greeks affect it
When to use
Diagonal Put needs to be executed when we expect stock/index to be range bound or bullish for long period. identifying clear area of support is important. When the stock closes above higher strike Put then near expiry short Put expires worthless while long expiry OTM Put falls in price.
- 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 more than initial outflow on the downside also can lose on upside if the stock rises significantly.
- High yield does not necessarily mean a profitable or high probability profitable trade.
Diagonal Put: questions
What is a Diagonal Put strategy?
Diagonal Put is a Horizontal Spread. The aim is to create a net credit trade by buying the longer term OTM put options and selling the ITM put options while creating the same risk profile as a Diagonal Call Spread.
When should you use a Diagonal Put?
Diagonal Put needs to be executed when we expect stock/index to be range bound or bullish for long period. identifying clear area of support is important. When the stock closes above higher strike Put then near expiry short Put expires worthless while long expiry OTM Put falls in price.
How do you set up a Diagonal Put?
Buy long term lower strike Put and sell nearby higher strike Put.
What is the maximum profit of a Diagonal Put?
Maximum reward is Value of long put option on expiration of short put.
What is the maximum loss of a Diagonal Put?
Maximum risk on the trade is Higher strike - value of long put at the time of first expiration-(net credit received or net debit paid if any).
What is the breakeven of a Diagonal Put?
With Nifty at 23,104, the example on this page breaks even at 23,021 and 23,409 at expiry.