Diagonal Spread
A diagonal spread is a modified calendar spread involving different strike prices. It is an options strategy established by simultaneously entering into a long and short position in two options of the same type—two call options or two put options—but with different strike prices and different expiration dates.
This strategy is called a diagonal spread because it combines a horizontal spread (also called a time spread or calendar spread), which involves a difference in expiration dates, and a vertical spread (price spread), which involves a difference in strike prices.
The terms horizontal, vertical, and diagonal spreads refer to the positions of each option on an options grid. Options are listed in a matrix of strike prices and expiration dates. Options used in vertical spread strategies are all listed in the same vertical column with the same expiration dates. Options in a horizontal spread strategy, meanwhile, use the same strike prices, but are of different expiration dates. The options are, therefore, arranged horizontally on a calendar.
Options used in diagonal spreads have differing strike prices and expiration days, so the options are arranged diagonally on the quote grid.
Most diagonal spreads are long spreads and the only requirement is that the holder buys the option with the longer expiration date and sells the option with the shorter expiration date.
For example, in a bullish long call diagonal spread, buy the option with the longer expiration date and with a lower strike price and sell the option with the near expiration date and the higher strike price. An example would be to purchase one December $20 call option and the simultaneous sale of one April $25 call.
Source: Investopedia
Source: The Options Industry Council