Comparision (DIAGONAL BEAR PUT SPREAD
VS RATIO PUT WRITE)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
RATIO PUT WRITE
About Strategy
Diagonal Bear Put Spread
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 bags limited rewards with limited risk.
This strategy is implemented by selling (short) the underlying asset in the cash/futures market. Simultaneously, sell ATM Puts double the number of long quantity. This strategy is used by a trader who in 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 SPREAD Vs RATIO PUT WRITE - Details
DIAGONAL BEAR PUT SPREAD
RATIO PUT WRITE
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
PE (Put Option)
Number Of Positions
2
2
Strategy Level
Beginners
Beginners
Reward Profile
Limited
Max Profit Achieved When Price of Underlying = Strike Price of Short Puts
Risk Profile
Limited
Loss Occurs When Price of Underlying < Strike Price of Short Put - Net Premium Received OR Price of Underlying > Strike Price of Short Put + Net Premium Received
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven Point = Strike Price of Short Puts + Points of Maximum Profit Lower Breakeven Point = Strike Price of Short Puts - Points of Maximum Profit
DIAGONAL BEAR PUT SPREAD Vs RATIO PUT WRITE - When & How to use ?
DIAGONAL BEAR PUT SPREAD
RATIO PUT WRITE
Market View
Bearish
Neutral
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 implemented by selling (short) the underlying asset in the cash/futures market. This strategy is used by a trader who in neutral on the market and bearish on the volatility in the near future
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Sell 2 ATM Puts
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven Point = Strike Price of Short Puts + Points of Maximum Profit Lower Breakeven Point = Strike Price of Short Puts - Points of Maximum Profit
DIAGONAL BEAR PUT SPREAD Vs RATIO PUT WRITE - Risk & Reward
DIAGONAL BEAR PUT SPREAD
RATIO PUT WRITE
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Net Premium Received - Commissions Paid
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Price of Underlying - Sale Price of Underlying - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid
Risk
Limited
Unlimited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs RATIO PUT WRITE - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
RATIO PUT WRITE
Similar Strategies
Bear Put Spread and Bear Call Spread
Short Strangle and Short Straddle
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Potential loss is higher than gain. • Limited profit.
