The Diagonal Spread Strategy: Harvest Time Decay While Riding Trends
Hey there, time-decay maestro!
Looking at this Amazon chart, you can see a perfect example of why diagonal spreads work so well. Notice how AMZN has been grinding higher from $144 lows to current levels around $211.36 - that's a steady, methodical uptrend without violent swings.
This type of persistent but controlled movement is exactly what diagonal spreads are designed to exploit. You get to ride the trend while harvesting premium along the way.
Why Amazon's Chart Shows Perfect Diagonal Setup
AMZN's recent price action demonstrates ideal diagonal spread conditions:
- Clear uptrend from $144 to $211 (steady directional bias)
- Controlled volatility with orderly pullbacks
- Strong support levels around $190-200
- Room to run toward $220-230 resistance
This creates the perfect environment for both trend-following and premium harvesting.
How the Diagonal Spread Works (Amazon Example)
With AMZN at $211.36, here's your diagonal spread setup:
- BUY a January 2026 $200 call for about $28 ($2,800) - your long-term directional bet
- SELL an August 2025 $220 call for about $6 ($600 credit) - your monthly income generator
- Net debit: $2,200
This creates a position that profits from Amazon's continued uptrend while generating consistent monthly income.
The Monthly Income Engine in Action
Here's where the magic happens with Amazon's steady climb:
- Every 30-45 days, let your short call expire if AMZN stays below $220
- Sell another call against your long position at current resistance levels
- Collect $500-800 in premium each cycle
- Reduce your effective cost basis with each iteration
Looking at the chart pattern, Amazon tends to respect technical levels, making strike selection more predictable.
Three Real-World Scenarios
- AMZN grinds to $230: Your long call gains $30 ($3,000), while short calls have generated $3,000+ over multiple cycles. Total profit potential: $3,800 on your $2,200 investment.
- AMZN consolidates around $210: Your long call holds value near breakeven, but you've collected substantial premium from multiple short call cycles. Net result: significant premium income with maintained upside exposure.
- AMZN pulls back to $185: Your long call loses some value, but the premium collected from short calls helps cushion the decline. Your effective cost basis improves with each premium collection cycle.
The Rolling Strategy That Makes It Work
Notice those key levels on Amazon's chart - $220, $230, $240. As AMZN approaches your short strike:
- Roll up and out - Close the $220 call, sell a $230 call with longer expiration
- Collect additional premium while giving the stock room to run
- Maintain your income engine while staying positioned for the trend continuation
Perfect Market Environment for Amazon Diagonals
AMZN right now offers:
- Established uptrend with clear support/resistance levels
- AWS growth driving steady fundamental improvement
- Options liquidity that allows easy adjustments
- Volatility levels that make premium collection attractive
Managing Your Amazon Diagonal
Watch quarterly earnings - Consider closing short calls before major announcements
Monitor the $200 support level - Your long call's key technical level
Have rolling targets ready - Know your adjustment points at $220, $225, $230
Weekend Setup Checklist for Amazon
- Confirm the uptrend remains intact (price above 20-day moving average)
- Buy LEAP calls 6-12 months out, slightly in-the-money, around $200-205
- Sell monthly calls at first resistance around $220-225
- Target 2-3% monthly returns on your net debit investment
Remember, diagonal spreads are marathon trades that compound returns over time. With Amazon's steady climb and clear technical levels, you're essentially running a covered call strategy without needing $21,136 to buy 100 shares.
You get trend participation plus income generation with a fraction of the capital.
Trade the trend and harvest time together!
Regards,
FindBetterTrades