Compare Strategies
| SHORT GUTS | DIAGONAL BEAR PUT SPREAD | |
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| About Strategy |
Short Guts Option StrategyThis strategy is implemented by a trader when he is neutral on the movements and bearish on volatility i.e. he expects the stock to be range bound in the near future. This strategy involves sale of 1 ITM Call Option and 1 ITM Put Option. This strategy can be called as Credit Spread since his account is credited at the time of entering in the positions. |
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. |
SHORT GUTS Vs DIAGONAL BEAR PUT SPREAD - Details
| SHORT GUTS | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | CE (Call Option) + PE (Put Option) | PE (Put Option) |
| Number Of Positions | 2 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Unlimited | Limited |
| Breakeven Point | Upper Breakeven Point = Net Premium Received + Strike Price of Short Call, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT GUTS Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| SHORT GUTS | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | This strategy is implemented by a trader when he is neutral on the movements and bearish on volatility i.e. he expects the stock to be range bound in the near future. | 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 | Sell 1 ITM Call, Sell 1 ITM Put | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Upper Breakeven Point = Net Premium Received + Strike Price of Short Call, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT GUTS Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| SHORT GUTS | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Net Premium Received + Strike Price of Short Put - Strike Price of Short Call - Commissions Paid | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Price of Underlying - Strike Price of Short Call - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
SHORT GUTS Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| SHORT GUTS | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Short Strangle (Sell Strangle), Short Straddle (Sell Straddle) | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Unlimited potential loss if the underlying stock continues to move in one direction. • High margin required. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Ability to profit even when underlying asset stays stagnant. • You are already paid your full profit the moment the position is put on as this is a credit spread position. • Higher chance of ending in full profit as compared to short strangle or short straddle. | The Risk is limited. |