Compare Strategies
| COVERED PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Covered Put Option StrategyThis strategy is exactly opposite to Covered Call Strategy. Here the investor is neutral or moderately bearish in nature and wants to take advantage of the price fall in the near future. The trader will short one lot of stock future. Now the trader will short ATM Put Option, the option strike price will be his exit price. If the prices rally above the strike price, the |
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 PUT Vs DIAGONAL BEAR PUT SPREAD - Details
| COVERED PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bearish | Bearish |
| Type (CE/PE) | PE (Put Option) + Underlying | PE (Put Option) |
| Number Of Positions | 2 | 2 |
| Strategy Level | Advance | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Unlimited | Limited |
| Breakeven Point | Futures Price + Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
COVERED PUT Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| COVERED PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bearish | Bearish |
| When to use? | The Covered Put works well when the market is moderately Bearish. | 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 Underlying Sell OTM Put Option | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Futures Price + Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
COVERED PUT Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| COVERED PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | The profit happens when the price of the underlying moves above strike price of Short Put. | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Price of Underlying - Sale Price of Underlying - Premium Received | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
COVERED PUT Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| COVERED PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Bear Put Spread, Bear Call Spread | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Limited profit, unlimited risk. • Trader should have enough experience before using this strategy. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Investors can book profit when underlying stock price drop, move sideways or rises by a small amount. • Able to generate monthly income. • Able to generate profit from fall in prices or mild increase in the prices. | The Risk is limited. |