some common questions on strike selections for diagonals, there are no hard and fast rules but it evolves into what you are comfortable with and what has worked and what hasnt worked. using AAPL as example
Leap strikes - based mainly on how much cash you have available to put towards this position. having $20k might will give you a wider range of strikes vs having 15k. you also dont have to go all in , you can get 1-2 Leaps now, see how it works for you then add to them as market moves back and forth. You can also select a delta level to target, say 70delta..(as in Leap moves .70 as stock moves $1.00). nothing magical about 70, just an example. you can do either , neither, or both. i like nice round numbers, keeps the math easy in my head.. like the 500 strike is easy to remember vs the 490 or the 510. combining all that together and assuming you have 15k to put to work leads you to the Jan2014 AAPL 500call... 71delta, nice round number, about $142 to buy.
Short strikes - again, depends on you, lots of possibilities,, you can pick a delta level that you want to consistently sell against, like the 25. or you can pick a dollar amount you want to take in for short call premium. you can do weeklies or monthlies, or a combination to work around earnings. such as if you know earnings are before an opex, selling a monthly will not give you much time decay as the IV rise into earnings will offset the time decay, so a series of weekly short calls might be more beneficial. Perhaps there is a resistence level on the chart that you have identified to base your short strikes on. lots of variables, its going to depend on what your thesis is for the market and for the stock both fundamental and technical. for instance, if you think market/stock will pull back, you may sell an at the money short call, or even an in the money short call to get greater protection. on that thought, there is nothing saying you can not put on collars either. at time of this posting, you could sell a no cost put spread collar.. sell the july 585 call, buy the 580/550 put spread for zero..give you lots of hedging there. so long story short, no hard and fast rule, i have used all of the above when selecting the short strikes.