Put Diagonal Spread Strategy
With the price below its 50-day average: buy a 0.70 Δ put about 4 months out and sell a 0.30 Δ put about a month out against it (bearish). Take half on the short and sell the next; close it all with 30 days left on the long or at half the debit lost.
Default settings, 2020 to Nov 4, 2026.
By stock and year
Select a row to chart it below. Shade is the gap to buying and holding that stock.Defined risk by design: the long options in the structure cap the loss, so there is no separate hedged version.
| Stock | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 YTD | CAGR | B&H CAGR | Max drawdown |
|---|---|---|---|---|---|---|---|---|---|---|
| −30.2%−45.4 | −22.6%−49.5 | +17.4%+36.9 | −13.8%−38.1 | −11.1%−34.4 | −26.0%−42.3 | −34.8%−47.2 | −19.1% | +13.4% | −78.4% | |
| −18.4%−63.5 | −17.2%−44.0 | +34.9%+67.9 | −8.9%−62.7 | −2.6%−27.5 | −31.2%−51.4 | −22.8%−35.4 | −11.6% | +18.5% | −66.2% | |
| −7.7%−26.2 | −6.8%−20.0 | +7.0%+28.6 | −4.3%−19.4 | −19.5%−29.6 | −21.3%−32.8 | −16.1%−31.4 | −10.5% | +8.2% | −72.4% | |
| −1.5%−119.2 | −12.1%−137.3 | +9.5%+59.8 | −4.7%−243.6 | −18.8%−190.0 | +8.1%−30.8 | −26.6%−26.7 | −7.6% | +65.2% | −60.0% | |
| −10.3%−87.0 | −13.6%−47.4 | +4.5%+31.3 | −11.8%−60.0 | −5.5%−35.6 | −26.5%−35.1 | −53.9%−82.5 | −19.4% | +25.2% | −78.2% |
Growth of $10,000
Weekly closes on a log scale; the red shade is the strategy's drawdown from its last high. Returns are on the capital the strategy needed at its peak, with interest on idle cash. Hypothetical: how the backtests are made.
Rules · the when / do flow, read-only until you make a copyShow flow
The strategy runs as 1 track side by side. Each day, the first rule whose conditions hold in each track acts.
1. Put diagonal
- INBuy the long, sell the short
When:
book.open == 0andspot < sma(trend_days)Do: buy put (as long)delta long_delta (0.7)dte long_dte (120)dte_min long_dte_min (90)dte_max long_dte_max (150)strict 1; sell put (as short)delta short_delta (0.3)strike_max spot - 0.001dte dte (30)dte_min dte_min (21)dte_max dte_max (45)avoid_earnings 1strict 1 - SLHalf the debit lost: close
When:
book.pnl_pct <= -stop_pctDo: close long; close short - EXLong down to exit_long_dte: close
When:
leg.long.dte <= exit_long_dteDo: close long; close short - S1Short at half its credit or near expiry: close it
When:
leg.short.open == 1andleg.short.pnl_pct >= take_pct or leg.short.dte <= manage_dteDo: close short - S2Sell the next short
When:
leg.long.open == 1andleg.short.open == 0Do: sell put (as short)delta short_delta (0.3)strike_max spot - 0.001dte dte (30)dte_min dte_min (21)dte_max dte_max (45)avoid_earnings 1 - Closed or expired
When:
book.open == 0Do: nothing (hold)
Parameters and defaults
Every named number in the rules can be changed in the Rule Builder. These are the defaults the backtest used.
| Parameter | Default |
|---|---|
trend_days | 50 |
long_delta | 0.7 |
long_dte | 120 |
long_dte_min | 90 |
long_dte_max | 150 |
short_delta | 0.3 |
dte | 30 |
dte_min | 21 |
dte_max | 45 |
take_pct | 50 |
manage_dte | 5 |
exit_long_dte | 30 |
stop_pct | 50 |
Make a copy to change any of it and run your own backtest.
Trade log · every open, roll, assignment and close for SPYShow trades
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With the price below its 50-day average: buy a 0.70 Δ put about 4 months out and sell a 0.30 Δ put about a month out against it (bearish). Take half on the short and sell the next; close it all with 30 days left on the long or at half the debit lost.
What it is
With the price below its 50-day average, buy a 0.70 delta put about four months out and sell a 0.30 delta put about a month out against it. The short put is closed at half its credit or near expiry and the next one sold; the whole position is closed with 30 days left on the long put, or after losing half the debit.
When to use it
Use it for a moderately bearish view, or as a hedge that pays some of its own cost through the short puts.
Maximum risk
The most you can lose is the net debit, plus any loss from closing a short put that the stock fell through.
Questions
Why does it lose most years in the backtest?
It is a bearish trade, and stocks rose in most of these years. It made money in 2022, the down year.
Why only below the 50-day average?
To trade it only when the trend is down; even so, many dips reversed quickly.
Is it a hedge?
It can be: the long put gains in a fall, and the short puts lower its cost, at the price of capping the gain below the short strike.