A smart strategy for retirees who want the best of both worlds.
When you’re retired, every dollar has a job to do. You want your money to work now—but you also want the chance for long-term growth without taking on big risks.
Enter the diagonal call spread: a flexible, lower-cost options strategy that can generate income while still giving you room to grow.
If covered calls are the “workhorse” of options income, diagonal spreads are the smarter cousin—they take less capital, offer more flexibility, and can deliver better risk-adjusted returns.
What Is a Diagonal Call Spread?
A diagonal call spread combines:
A long-term call (months out) that you buy
A short-term call (days to weeks out) that you sell
Both are on the same stock, but at different strike prices and expirations. You earn income from selling the short call, while holding the long call to capture stock appreciation over time.
It’s like leasing your bullish position each month—for cash.
Example:
Let’s say you’re bullish on PepsiCo (PEP), currently trading at $170.
Here’s what you do:
Buy a 3-month call at the $165 strike for $7.00
Sell a 1-month call at the $175 strike for $2.00
Your net cost: $5.00 per share (or $500 total)
What Happens Next?
If PEP stays below $175 by the short call’s expiration, you keep the $200 and can sell another short call.
If PEP rises past $175, the short call may be exercised, but your long call gains value too—offsetting the difference.
Over time, you can repeat this monthly, reducing your cost basis and potentially capturing long-term gains.
Why Diagonal Call Spreads Work for Retirees
Lower capital required than buying 100 shares
Combines income now with growth potential
Built-in flexibility—you can roll or adjust month to month
Can be used in IRAs and tax-advantaged accounts
You’re not just hoping the stock goes up—you’re getting paid along the way.
Quick Tip:
Choose strike prices with some cushion between them and give yourself time on the long call. It’s the monthly income that makes this strategy shine.
In Summary:
Diagonal spreads = long-term call + short-term call
They cost less than buying stock, but can still profit if the stock rises
Ideal for retirees who want a repeatable monthly income strategy without tying up large amounts of capital
Ready to Start Trading Smarter?
At OptionsAction.com, we show you exactly how to set up diagonal spreads with step-by-step guidance, real-life examples, and support built for retirees—not day traders.
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