Mixing Exposure  •  239
Strike Price Selection
Strike price selection for a short diagonal is more difficult because there 
are three strikes to price this time. Looking at the current pricing for a 
call spread with the short call struck at $55, I get the following selection of 
credits:
Upper Call Strike ($)
Call Spread 
Net Credit ($)
Percent Total 
Risk Percent Total Return
57.50 1.27 17 49
60.00 2.14 33 83
62.50 2.44 50 94
65.00 2.51 67 97
70.00 2.59 100 100
Looking at this, let’s say we decide to go with the $55.00/$62.50 call 
spread. Doing so, we would receive a net credit of $2.44. Now selecting the 
put to purchase is a matter of figuring out the leverage of the position with 
which you are comfortable.
Strike ($) Delta (Debit) Credit ($) Put Lambda (%)
20.00 –0.02 2.20 –4.5
23.00 –0.02 2.11 –4.6
25.00 –0.03 2.05 –4.6
28.00 –0.04 1.91 –4.8
30.00 –0.05 1.78 –4.8
33.00 –0.07 1.57 –4.8
35.00 –0.09 1.38 –4.8
38.00 –0.12 0.99 –4.8
40.00 –0.15 0.67 –4.7
42.00 –0.17 0.30 –4.7
45.00 –0.23 (0.43) –4.5
47.00 –0.26 (1.01) –4.4
50.00 –0.33 (1.91) –4.4
52.50 –0.39 (3.11) –4.0