A bullish diagonal spread is an advanced option trade and generally not suitable for beginners, but it can have its place within an option portfolio. It is a bullish strategy that benefits from time decay and is best placed when volatility is low, such as the current conditions. More News from Barchart The strategy involves buying a longer-dated call and selling a shorter-term out-of-the-money call against it. The trade is best placed when the trader has a bullish outlook and thinks the stock could ge ...

Core Viewpoint - The bullish diagonal spread is an advanced options trading strategy that is suitable for traders with a bullish outlook, particularly in low volatility conditions [1][2]. Group 1: Strategy Overview - The strategy involves buying a long-term call option and selling a monthly out-of-the-money call option against it [2][4]. - It is best executed when the trader believes the stock will reach the short call strike by the expiration date [2]. - A rise in implied volatility positively impacts the trade due to its overall positive Vega [2]. Group 2: Company Example - Robinhood Markets (HOOD) - Robinhood Markets is currently experiencing an orderly pullback towards the 50-day moving average and is rated a Buy [3]. - The Barchart Technical Opinion rating for HOOD is 88% Buy, indicating a strengthening short-term outlook [3]. - Long-term indicators support a continuation of the bullish trend, with Relative Strength recently crossing above 50% [3]. Group 3: Trade Structuring - The trade can be structured at a stock price of $80, giving it a delta of approximately 26, equivalent to being long 26 shares [5]. - Selling the November 21st $150-strike call option generates around $650 in premium, while buying the December 19th $130-strike call costs about $1,850 [5]. - This results in a net cost of $1,200 per spread, which is the maximum potential loss for the trade [5]. Group 4: Profit Potential - The estimated maximum profit for the trade is around $1,200, contingent on changes in implied volatility [6]. - Maximum profit occurs if HOOD closes at $150 on November 21st [6].