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Double Diagonals

Double diagonals are a favorite among professional index option traders.

The double diagonal capitalizes perfectly on the moderate range of the index versus singular components by selling a front premium to capture the accelerated time value decay while leaving the back month purchased options to gain value following the expiration of the short premium.

This situation creates a long strangle in the index after the expiration of the front options with the choice to roll the short options forward into the short condor or maintain a directional position with one of the long options by allowing the shorts to expire.

The spread is limited risk and an excellent choice for range-bound index markets.

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