Compare Strategies
| PROTECTIVE PUT | DIAGONAL BEAR PUT SPREAD | |
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| About Strategy |
Protective Put Option StrategyProtective Put Strategy is a hedging strategy where trader guards himself from the downside risk. This strategy is adopted when a trader is long on the underlying asset but skeptical of the downside. He will buy one ATM Put Option to hedge his position. Now, if the underlying asset moves either up or down, the trader is in a safe position.
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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. |
PROTECTIVE PUT Vs DIAGONAL BEAR PUT SPREAD - Details
| PROTECTIVE PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bullish | Bearish |
| Type (CE/PE) | PE (Put Option) | PE (Put Option) |
| Number Of Positions | 1 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Unlimited | Limited |
| Risk Profile | Limited | Limited |
| Breakeven Point | Purchase Price of Underlying + Premium Paid | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
PROTECTIVE PUT Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| PROTECTIVE PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bullish | Bearish |
| When to use? | This strategy is adopted when a trader is long on the underlying asset but skeptical of the downside. | 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 |
| Action | Buy 1 ATM Put | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Purchase Price of Underlying + Premium Paid | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
PROTECTIVE PUT Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| PROTECTIVE PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Price of Underlying - Purchase Price of Underlying - Premium Paid | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Premium Paid + Purchase Price of Underlying - Put Strike + Commissions Paid | When the stock trades up above the long-term put strike price. |
| Risk | Limited | Limited |
| Reward | Unlimited | Limited |
PROTECTIVE PUT Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| PROTECTIVE PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Long Call, Call Backspread | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Value of protective put position decreases as time passes • Holding period of the protective put can be affected by the timing as a result tax rate on the profit or loss from the stock can be affected. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Unlimited potential profit due to indefinitely rise in the underlying stock price . • This strategy allows you to hold on to your stocks while insuring against losses. • Hedging strategy, trader can guard himself from the downside risk. | The Risk is limited. |