Alternatively you may also consider the following - conditional premium selling :
• Your core position is a clean bullish vertical call spread
• This expresses the directional thesis
• Premium selling is added only when the market offers it.
You only sell short-dated calls after the market shows signs that time decay is likely to work in your favor, such as:
• A stall after a strong move (momentum pauses)
• A failed breakout (price can’t hold above resistance)
• A volatility spike (short-dated IV jumps relative to back-month IV)
At those moments, selling premium is opportunistic, not obligatory. You are reacting to conditions, not locked into defending a short option regardless of market behavior.
This approach solves the diagonal’s biggest weakness:
• You are never forced to cap upside during the strongest phase of the move
• You avoid the classic mistake of being directionally right but structurally wrong
• Premium selling becomes a tactical overlay, not a permanent constraint
In practice, this means:
• If the market trends cleanly → let the vertical work
• If the market chops or volatility spikes → sell calls then
• If momentum accelerates → stand aside and keep convexity
Think of it as: “Earn theta only when the market offers it — don’t sell theta just to finance the trade.”
So instead of: Diagonal first, manage later, you’re choosing:
Yes, I think there is definitely a second-order approach to be considered here. Too many folks look to sell theta in any circumstances, rather than considering what circumstances are most optimal.
Of course, adding complexity doesn’t necessarily mean additional edge. But intuitively I feel like there is additional value one could gain here if one wanted to work for it.
I also believe that diagonalizing a longer-dated call can be an effective way to reduce cost, dampen vega risk, and monetize time, especially in a high-IV environment like HL. By selling lower-delta, near-dated calls and rolling them over time, you partially finance the long call and smooth the P&L. This works best if you expect a grindy or uneven upside, not a straight-line rally, and if you’re comfortable that active management is part of the edge, not a drawback.
The main risk is speed: if HL runs quickly, the short call can go ITM and cap upside at the wrong moment. That risk is manageable by selling OTM calls (roughly 0.20–0.35 delta), rolling early rather than late, and being willing to pause call-selling during strong momentum phases. From a volatility standpoint, diagonals also help offset elevated long-dated IV, but care is needed in contango—keeping the short leg OTM and using 30–45 DTE expiries reduces gamma and roll pressure.
In practice, this means pairing an ITM or near-ATM long call (0.60–0.70 delta) with systematically sold OTM calls as a financing engine. If you expect slow progress higher, diagonals are attractive; if you expect a sharp breakout, simpler structures like vertical call spreads or outright long calls tend to perform better. The trade-off I believe is clear: diagonals monetize theta as you mentioned and also control risk, but they give up some convexity when the move comes fast, which I think may happen in Q1 for gold/silver.
Excellent, thanks for the detailed analysis; I believe we’re on the same page. I have long felt than when considering a spread, there is edge in selling premium more frequently, *provided* that one manages the risks you identify and is willing to undertake more active management. I am going to consider trying this side-by-side with some of your verticals to see what my experience is.
Thanks for this. One question: particularly for a longer term trade like this, what are your views on diagonaling the spread to incorporate theta in helping to finance the long call? (By which I mean selling a near-dated call and then rolling it, ideally multiple times during the trade to capture additional premium.)
This increases trade management, and it also adds complexity if the underlying runs up more quickly than anticipated, but these are manageable.
Alternatively you may also consider the following - conditional premium selling :
• Your core position is a clean bullish vertical call spread
• This expresses the directional thesis
• Premium selling is added only when the market offers it.
You only sell short-dated calls after the market shows signs that time decay is likely to work in your favor, such as:
• A stall after a strong move (momentum pauses)
• A failed breakout (price can’t hold above resistance)
• A volatility spike (short-dated IV jumps relative to back-month IV)
At those moments, selling premium is opportunistic, not obligatory. You are reacting to conditions, not locked into defending a short option regardless of market behavior.
This approach solves the diagonal’s biggest weakness:
• You are never forced to cap upside during the strongest phase of the move
• You avoid the classic mistake of being directionally right but structurally wrong
• Premium selling becomes a tactical overlay, not a permanent constraint
In practice, this means:
• If the market trends cleanly → let the vertical work
• If the market chops or volatility spikes → sell calls then
• If momentum accelerates → stand aside and keep convexity
Think of it as: “Earn theta only when the market offers it — don’t sell theta just to finance the trade.”
So instead of: Diagonal first, manage later, you’re choosing:
• Vertical first
• Diagonal only when conditions clearly allow it
Yes, I think there is definitely a second-order approach to be considered here. Too many folks look to sell theta in any circumstances, rather than considering what circumstances are most optimal.
Of course, adding complexity doesn’t necessarily mean additional edge. But intuitively I feel like there is additional value one could gain here if one wanted to work for it.
Great to hear, and very much appreciate your feedback on this. Let me know in due time how your approach has worked out ?
Hi Tony, great question !
I also believe that diagonalizing a longer-dated call can be an effective way to reduce cost, dampen vega risk, and monetize time, especially in a high-IV environment like HL. By selling lower-delta, near-dated calls and rolling them over time, you partially finance the long call and smooth the P&L. This works best if you expect a grindy or uneven upside, not a straight-line rally, and if you’re comfortable that active management is part of the edge, not a drawback.
The main risk is speed: if HL runs quickly, the short call can go ITM and cap upside at the wrong moment. That risk is manageable by selling OTM calls (roughly 0.20–0.35 delta), rolling early rather than late, and being willing to pause call-selling during strong momentum phases. From a volatility standpoint, diagonals also help offset elevated long-dated IV, but care is needed in contango—keeping the short leg OTM and using 30–45 DTE expiries reduces gamma and roll pressure.
In practice, this means pairing an ITM or near-ATM long call (0.60–0.70 delta) with systematically sold OTM calls as a financing engine. If you expect slow progress higher, diagonals are attractive; if you expect a sharp breakout, simpler structures like vertical call spreads or outright long calls tend to perform better. The trade-off I believe is clear: diagonals monetize theta as you mentioned and also control risk, but they give up some convexity when the move comes fast, which I think may happen in Q1 for gold/silver.
Excellent, thanks for the detailed analysis; I believe we’re on the same page. I have long felt than when considering a spread, there is edge in selling premium more frequently, *provided* that one manages the risks you identify and is willing to undertake more active management. I am going to consider trying this side-by-side with some of your verticals to see what my experience is.
Thanks for this. One question: particularly for a longer term trade like this, what are your views on diagonaling the spread to incorporate theta in helping to finance the long call? (By which I mean selling a near-dated call and then rolling it, ideally multiple times during the trade to capture additional premium.)
This increases trade management, and it also adds complexity if the underlying runs up more quickly than anticipated, but these are manageable.
Fantastic post!