Comparision (DIAGONAL BEAR PUT SPREAD
VS LONG CALL BUTTERFLY)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
LONG CALL BUTTERFLY
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.
A trader, who is neutral in nature and believes that there will be very low volatility i.e. expects the market to remain range bound, will implement this strategy. This strategy involves selling of 2 ATM Call Options, buying 1 ITM Call Option & buying 1 OTM Call Option of the same expiry date & same underlying asset. The difference between the strikes sho ..
DIAGONAL BEAR PUT SPREAD Vs LONG CALL BUTTERFLY - Details
DIAGONAL BEAR PUT SPREAD
LONG CALL BUTTERFLY
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option)
Number Of Positions
2
4
Strategy Level
Beginners
Advance
Reward Profile
Limited
Limited
Risk Profile
Limited
Limited
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven = Higher Strike Price - Net Premium, Lower Breakeven = Lower Strike Price + Net Premium
DIAGONAL BEAR PUT SPREAD Vs LONG CALL BUTTERFLY - When & How to use ?
DIAGONAL BEAR PUT SPREAD
LONG CALL BUTTERFLY
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 should be used when you're expecting no volatility in the price of the underlying.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Sell 2 ATM Call, Buy 1 ITM Call, Buy 1 OTM Call
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven = Higher Strike Price - Net Premium, Lower Breakeven = Lower Strike Price + Net Premium
DIAGONAL BEAR PUT SPREAD Vs LONG CALL BUTTERFLY - Risk & Reward
DIAGONAL BEAR PUT SPREAD
LONG CALL BUTTERFLY
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Adjacent strikes - Net premium debit.
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Net Premium Paid
Risk
Limited
Limited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs LONG CALL BUTTERFLY - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
LONG CALL BUTTERFLY
Similar Strategies
Bear Put Spread and Bear Call Spread
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Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Due to limited lifespan of call options, you can lose the premium paid. • Limited profit which is bound in a narrow range between the two wing strikes.
Advantages
The Risk is limited.
• Under this strategy, a trader can book profit even when there is not volatility in the market. • Limited risks to the net premium paid. • This strategy allows you to gain more profits by investing less and limiting your losses to minimum.
