Compare Strategies
| RATIO PUT SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Ratio Put Spread Option StrategyThis strategy involves buying ITM Puts and simultaneously selling OTM Puts, double the number of ITM Puts. This strategy is used by a trader who is neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited. |
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. |
RATIO PUT SPREAD Vs DIAGONAL BEAR PUT SPREAD - Details
| RATIO PUT SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | PE (Put Option) | PE (Put Option) |
| Number Of Positions | 3 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Unlimited | Limited |
| Breakeven Point | Upper Breakeven Point = Strike Price of Long Put +/- Net Premium Received or Paid, Lower Breakeven Point = Strike Price of Short Puts - (Points of Maximum Profit / Number of Uncovered Puts) | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
RATIO PUT SPREAD Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| RATIO PUT SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | This strategy is used by a trader who is neutral on the market and bearish on the volatility 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 | Buy 1 ITM Put, Sell 2 OTM Puts | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Upper Breakeven Point = Strike Price of Long Put +/- Net Premium Received or Paid, Lower Breakeven Point = Strike Price of Short Puts - (Points of Maximum Profit / Number of Uncovered Puts) | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
RATIO PUT SPREAD Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| RATIO PUT SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Strike Price of Long Put - Strike Price of Short Put + Net Premium Received - Commissions Paid | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Strike Price of Short - Price of Underlying - Max Profit + Commissions Paid | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
RATIO PUT SPREAD Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| RATIO PUT SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Short Straddle (Sell Straddle), Short Strangle (Sell Strangle) | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Unlimited potential risk. • Limited profit. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Directional strategy so that there is either no upside or downside risk. • Able to profit even if trader is neutral on the market. • Higher probability of profit. | The Risk is limited. |