Double Long Diagonals on SPX: Tom Lei on Calendars, Theta and Flies
Tom Lei explains where a double calendar's edge comes from and why he moved into double long diagonals with a built-in floor of about $10 of intrinsic value.
Tom Lei’s 14/17 double long diagonal on SPX cost about $10 to $15 to open in his trade log (option price, so roughly $1,000 to $1,500 per spread), and in his description it keeps about $10 of intrinsic value even if the market moves 500 points. That built-in floor is why he calls it a good learning trade for newer calendar traders, and it’s the structure he moved his trades into around the November 2024 election.
This is part two of his conversation with Dan Sheridan. Tom is an Option Omega community member who has traded for about six years. Dan opened with a concern: tools like backtesting and automation can speed up the learning curve, but they can also let traders skip understanding the options they trade. Tom wanted to talk calendars and flies, starting with how the trades actually work. Part one is Tom Lei: from WSB to risk manager on SPX options.
Where the edge in a double calendar comes from
Tom’s view is that you have to know how your car works. He breaks the double calendar’s edge into three parts:
- Theta. A double calendar is theta positive, and in his view a successful one makes most of its money from theta. Tom said this surprised him when the data came out from a study that David Romeo and others ran.
- Vega shift, or weighted vega. This is the change in the gap between the front-leg and back-leg implied volatility. Events like FOMC, CPI or single-stock earnings can make a spread jump in value even when spot barely moves. In his words, the vega shift either works for you “or it will eat you alive.”
- Delta convexity. The risk profile has two peaks. As expiration gets closer, the trade behaves more like a reverse iron condor (RIC). That is why Tom sees stops as an advantage here: a delta exit can close the trade before price drifts too far outside the range, where it becomes a big loser.
Deltas, the sag and the short/long ratio exit
Dan’s own calendars were longer-dated for most of his career: shorts about 10 to 12 days out and longer trades around 35 to 40 days. On those, he often placed shorts near 30 delta, because the extra time lowered the risk of price running through the short strikes quickly.
On shorter calendars, with shorts about five days out, many traders in the community use 20 to 25 delta. Tom called that the sweet spot. There is more gamma on the short leg, so traders go lower in delta. The cost is more “sag in the middle”: the trade can lose value even when price stays between the strikes.
Tom said Option Omega is “purpose-built” for calendar trades and pointed to the short/long ratio exit as the main tool for that middle sag. If the position gets down to a set point, the trade exits and takes the loss instead of waiting to see if it keeps sagging.
Profit targets, losses and staying boring
For Tom, the profit target is the most important exit and one every trader struggles with. He adjusts it constantly. He treats stops and targets as just exits on a distribution.
- The size of the loss matters. “A loss of a 5% and a loss of a 500% is very very different.”
- He doesn’t judge one trade. Over a thousand trades, there will be winners and losers. Three exits in a row at a 50% profit target do not excite him. Three losses of 20–30% do not bother him either.
- He has let go of the trade that “would have won.” Closing at a loss before a trade goes on to max profit is normal, he says, and no longer matters to him.
Dan’s view is that the trades that derail most students at year-end are the few big losers without rails. Delta exits and short/long ratio exits are why he wishes every calendar trader he has taught would use automation.
Seeing a calendar on an extrinsic value chart
Tom shared a chart that shows extrinsic premium by strike for several expirations, one line per expiry. Further-dated lines sit higher. A calendar is the gap between two of those lines at the same strike, and Tom suggests treating that gap as a single premium.
His rough example, which he called “a very bad DTE example,” used a 7500 call strike with SPX near 7,400:
| Long leg | Short leg | Spread value | |
|---|---|---|---|
| At entry | About $15–16 | About $4 | About $12 paid |
| Price moves toward the strike (same time) | About $60 | About $36 | About $24 |
If price moves further out of the money, the spread shrinks and the trade loses. If it moves toward the strike, the gap between the lines widens, and it widens even more as the short leg nears expiration. A double calendar uses both sides because, as Tom put it, “we cannot determine direction.”
Far out in time, the lines nearly touch, so a far out-of-the-money calendar years out costs very little. Tom’s broader point is to understand how extrinsic value turns into intrinsic value. You can explore similar ideas in Option Omega’s modeling tools.
The 14/17 double long diagonal
A double long diagonal is a variation on a double calendar:
| Structure | Where the longs sit |
|---|---|
| Double calendar | Same strikes as the shorts |
| Double diagonal | Outside the shorts |
| Double long diagonal | Inside the shorts, closer to the money |
Tom’s example sells the shorts at 14 DTE on a Friday and buys the longs at 17 DTE on a Monday. In his trade log, the entry premium usually ran about $10 to $15. With the longs about 10 points inside the shorts, the trade holds roughly $10 of intrinsic value. If the market makes an outsized move, he expects to get back about $10, perhaps $9.90 after slippage. In his view, that gives a natural floor that helps with sizing.
Other points Tom and Dan made:
- Slightly less sag in the middle, because the long strikes are closer to the money.
- A wider delta exit is possible, since a large move is less damaging.
- Less theta than a double calendar at similar deltas, as Dan noted. Tom’s view is that, after studying the extrinsic chart, the extra cost for the $10 of protection is small.
- Friday short, Monday long is, in Tom’s view, the cheapest way to build it. The trade-off is that the Friday short’s IV may rise as it nears expiration, which is the vega shift problem. Tom calls these slow burners.
- Entries under $10 are ones he especially likes, though they still produce losers.
Dan noted that moving the long out to 18 days instead of 17 costs more and adds a little negative gamma, but in his experience it can let the short “breathe.” He said you’d want to test it.
Tom was clear that he has retired this trade and does not trade any setup forever. He shared it as a starting point to learn how the trade behaves when price sits still or moves a lot, not as a recommendation.
Why he switched after November 2024
About 90% of the diagonals Tom traded used to be short diagonals. Around the November 2024 election, he saw gamma hurting them, and calendars were stopping out a lot as volatility rose. He converted his trades to double long diagonals, which he says was “quite lucky” timing. In his account, they outperformed calendars and short diagonals for a while. At the time of the interview, he preferred a mix of double calendars, short diagonals and long diagonals with different exits, which he says works better for him than calendars alone.
Broker theta vs. the theta he collects
Both agreed that the theta number on the screen overstates what you collect. Tom described a “discount to theta”: on a 7 DTE trade it is often 70–75%. If the platform shows $1,000 a day, he says you will be lucky to get $200–250. If IBKR shows $10,000 of daily theta, he would expect about 10% of it.
Picking a duration
Tom trades “a very mixed batch” of durations. His view is that durations share much the same edge, but under a week a trader needs to understand day-of-week behavior. A structure that works opened on a Monday may not work opened on a Thursday. Dan said backtesting confirmed what he had sensed from years of trading but could never track from memory.
For newer traders, Tom thinks a 14-day short is easier because it avoids early intraday swings. Dan’s suggestion: paper trade or start with one contract, commit to at least 10 trades, and consider automating from the start to build good habits.
Cheap 0DTE butterflies
Tom trades many 0DTE butterflies as a gamma exposure (GEX) trade, separate from his mechanical book. He has done GEX trading for four or five years. These flies are cheap and often directional, and his win rate is about 10–20%. As Dan pointed out, a 15-wide butterfly bought for $1 that pins can pay out up to $1,500 on a $100 cost. Tom’s best week had three winning days; he has also had two weeks of nothing but losses. “It’s not a trade for the faint heart.”
He also noted that flies near the money are short vega, which can hedge long-vega calendars. In his view, flies of every DTE had done well this year (2026, as of the interview), helped by two long periods of range-bound prices. Longer-dated flies in particular had worked well, and he said he may look into the 30 to 45 DTE flies he once scoffed at.
Key takeaways
- Tom sees three sources of edge in a double calendar: theta, the vega shift, and delta convexity.
- Lower deltas on short calendars bring more sag; the short/long ratio exit is one way to manage it.
- A double long diagonal builds in a floor. In Tom’s 14/17 example, about $10 of intrinsic value on a $10–15 entry.
- Tom discounts broker theta heavily, by 70–75% or more in his experience.
- He judges the distribution, not the single trade, and focuses on keeping losses small.
Test your own calendars and diagonals
You can backtest double calendars and double diagonals across DTEs, deltas and days of the week, and add delta and short/long ratio exits, in the Option Omega backtester. For a portfolio view of calendars, see David Romeo on double calendars and tail risk.
Watch the full video: Long Diagonals and more with Tom and Dan.
This post summarizes a conversation from August 2026 and is educational only. Options trading involves substantial risk.
