Compare Strategies
| DIAGONAL BEAR PUT SPREAD | COVERED COMBINATION | |
|---|---|---|
|
|
|
| About Strategy |
Diagonal Bear Put SpreadWhen the trader is neutral – bearish in the near-month and bearish in the mid-month, he will apply Diagonal Bear Put Spread. This strategy involves buying Mid-Month ITM Put Options and selling (short/write) equal number of Near-Month OTM Put Options, of the same underlying asset. This strategy bags limited rewards with limited risk. |
Covered Combination Option StrategyThis strategy involves selling OTM Call & Put Options and buying the underlying asset in either cash or futures market. It is also known as Covered Strangle as the profits are capped and risk is potentially unlimited. Risk: Un .. |
DIAGONAL BEAR PUT SPREAD Vs COVERED COMBINATION - Details
| DIAGONAL BEAR PUT SPREAD | COVERED COMBINATION | |
|---|---|---|
| Market View | Bearish | Bullish |
| Type (CE/PE) | PE (Put Option) | CE (Call Option) + PE (Put Option) |
| Number Of Positions | 2 | 2 |
| Strategy Level | Beginners | Advance |
| Reward Profile | Limited | Limited |
| Risk Profile | Limited | Unlimited |
| Breakeven Point | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. | (Purchase Price of Underlying + Strike Price of Short Put - Net Premium Received) / 2 |
DIAGONAL BEAR PUT SPREAD Vs COVERED COMBINATION - When & How to use ?
| DIAGONAL BEAR PUT SPREAD | COVERED COMBINATION | |
|---|---|---|
| Market View | Bearish | Bullish |
| When to use? | When the trader is neutral – bearish in the near-month and bearish in the mid-month, he will apply Diagonal Bear Put Spread. This strategy involves buying Mid-Month ITM Put Options and selling (short/write) equal number of Near-Month OTM Put Options, of the same underlying asset | This strategy is mainly suited for investors who are moderately bullish on a stock and are comfortable with increasing their position in the event of a price decline. |
| Action | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option | Sell 1 OTM Call, Sell 1 OTM Put |
| Breakeven Point | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. | (Purchase Price of Underlying + Strike Price of Short Put - Net Premium Received) / 2 |
DIAGONAL BEAR PUT SPREAD Vs COVERED COMBINATION - Risk & Reward
| DIAGONAL BEAR PUT SPREAD | COVERED COMBINATION | |
|---|---|---|
| Maximum Profit Scenario | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month | Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received - Commissions Paid |
| Maximum Loss Scenario | When the stock trades up above the long-term put strike price. | Purchase Price of Underlying + Strike Price of Short Put - (2 x Price of Underlying) - Max Profit + Commissions Paid |
| Risk | Limited | Unlimited |
| Reward | Limited | Limited |
DIAGONAL BEAR PUT SPREAD Vs COVERED COMBINATION - Strategy Pros & Cons
| DIAGONAL BEAR PUT SPREAD | COVERED COMBINATION | |
|---|---|---|
| Similar Strategies | Bear Put Spread and Bear Call Spread | Stock Repair Strategy |
| Disadvantage | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. | Combinations can be profitable in sideways or rising markets. Greater combined net credit increases downside protection and potential return. |
| Advantages | The Risk is limited. | Limited Maximum Profit on the upside. Covered Combinations should only be traded on stocks that are bullish. |