Diagonal Spread

No, not an image from a late night HBO special "art film." A diagonal spread is a complex derivative trade wherein the strikes prices (vertical, i.e., higher and lower) and the expiration dates (horizontal, newer and older) are different. To execute this trade, the trader presumably finds a kind of arbitrage in the way the values are attributed or skewed in directions such that the total pit doesn't add up to zero, net of commissions and/or spreads.

See: Alligator spread. In this type of spread, it is notionally claimed as "diagonal" because both duration (high and low) and time (high and low) are being pivoted. In other words, the dates and the prices on the spread are different. If you drew them out all nice and pretty, you could draw lines across the trade and they'd be, um, diagonal.

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