When subscribers ask about other sources of information, I often mention all the webinars available on the CBOE and other exchange or broker websites. Sometimes I forget to caution that some of those webinars are old. Why should that matter? Options are options, right?

Options may be options, but we all know that market conditions change, sometimes requiring changes in our trading strategies. This last year, for example, most of us have had to account for the possibility of a further relentless climb higher.

More than that can change, however, and a recent scan of those old webinars may pinpoint one of the dangers of depending on old information. I had scrolled through the listing of sessions and noticed an old webinar describing a strategy, the double diagonal. That was a trade I had once leaned toward employing as my primary trade.

The last couple of years have not necessarily been good years for the double diagonal. The trouble isn't with the trade itself: it's the way it's sometimes margined.

For those unfamiliar with the term, a diagonal is a type of options trade in which one option is sold and another in a further-out month is bought at a different strike. If the further-out option were at the same strike, that would be a calendar trade rather than a diagonal. The calendar can be a neutral trade when placed at the money while the single diagonal is directional.

IWM Bull Put Diagonal Spread:

Whenever you see a curve in an expiration graph, you can recognize immediately that the position is comprised of options from more than one expiration period.

Options Comprising the Position:

Remember that my articles are roughed out sometimes up to a few weeks before publication, so that prices and graphs are not current.

Because the long option has longer to expire, it has more time or extrinsic value. For this reason, the 82/84 diagonal would not bring in as much credit as an 82/84 vertical in the same expiry. However, that long option may hold onto its hedging properties a bit better than an option in the same expiring period. That long option has more positive vega to pit against the negative vega of the sold option. The position isn't hurt as much by a rise in implied volatilities on a downdraft as a regular put vertical might be.

While a single diagonal is a directional trade, much as a debit or credit spread might be, two diagonals can be used together to create a neutral position known as a double diagonal. I used to trade small double diagonals on the MNX, planning to size up as I gained more experience.

Here's a setup from my trade journal for an actual trade that I initiated on 11/19/09. I apologize in advance for the dark think-or-swim chart, but since this was from a page in my trade journal, I can't go back and set it up again with a different background. The graph is also not centered because I had to crop it due to sizing requirements for this article. I had not anticipated back in November 2009 when I was putting this material into my trade journal that I would eventually be including it here.

Risk Graph:

Options and Strategy Summary, Via Freeware Options Oracle:

According to my original trade notes, my hope was to make more than 10 percent profit on the margin withheld, collecting about 60-70 percent of the low end of the profit available near the center of the formation, where the profit line sagged. I had listed a profit target of $228.38.

After a difficult month managing the position and the day before an important jobs number was coming out, I elected to close the trade. My trade journal notes tell me that I collected 45 percent of the profit available at that sag instead of the 60-70 percent I had hoped to collect. My notes listing my reasons for closing the trade include the fact that I wanted to open the next month's double diagonal the next day. Although I was trading this in a small size, I like to trade those small-size trades as if I were already sized up, trading this in the NDX instead of the MNX. I might not have wanted to have overlapping trades in two different months once I'd sized all the way up.

I had intended these to eventually be one of my primary trades. They could be set up so that the vega risk was neutralized, as the trade could be flat vega, positive vega or negative vega, depending on how many months out the longs were and how far out of the money they were. If the longs were placed several months in the future and if the underlying didn't move too much, it was possible to sell the front-month options, lock in the profit on them when it became available and then sell the next month's options, still using the original longs.

As it turned out, I didn't trade them much longer than that trade shown. What happened? FINRA happened. I tended to set these up so that the spreads were equal distance apart on each of the diagonals, and my platform had margined only one side, as is done with a balanced butterfly or iron condor. However, FINRA clamped down on platforms, and a double diagonal isn't a FINRA-recognized trade that allowed for margining on only one side of the trade. Although some options-trading platforms had been margining only one side, FINRA required all platforms to adhere to their sometimes antiquated descriptions of complex options positions.

So, that's one thing that's wrong with double diagonals in this environment. I've heard some rumors that some platforms might be working with FINRA to develop new definitions that incorporate up-to-date ideas about such strategies. However, I would confirm the margining practices for these strategies before I considered them. I just checked FINRA's site (.org), and a word search turns up no mention of "diagonal." "Time spreads" are defined only as the calendar type. Although I can't be certain, it does not appear that FINRA has yet changed its definitions to incorporate these once flexible trades.

Some active traders I know are employing single diagonals as hedges to other trades, and some traders also use them as speculative trades. Your platform's paper trading capabilities or those offered by freeware Options Oracle can help you test the way single diagonals might work for you. I might even dust off my old trading journal notes and review them, just in case FINRA rules get straightened out. However, double margining on these double diagonals significantly changes the profit as a percentage of margin withheld, making it a less viable trade for some traders. All those webinars available on the exchanges or your trading platform are great, but before you dive in, make sure margining rules and trading conditions haven't changed so much that the trade is no longer workable.