Comparision (DIAGONAL BEAR PUT SPREAD
VS LONG GUTS)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
LONG GUTS
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 a trader when he is neutral on the movements and bullish on volatility i.e. he expects the stock to move in either direction with high magnitude. This strategy involves buying 1 ITM Call Option and 1 ITM Put Option. This strategy can be called as Debit Spread because trader’s account is debited at the time of entering the positions.< ..
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven Point = Net Premium Paid + Strike Price of Long Call, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
DIAGONAL BEAR PUT SPREAD Vs LONG GUTS - When & How to use ?
DIAGONAL BEAR PUT SPREAD
LONG GUTS
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 a trader when he is neutral on the movements and bullish on volatility i.e. he expects the stock to move in either direction with high magnitude.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Buy 1 ITM Call, Buy 1 ITM Put
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven Point = Net Premium Paid + Strike Price of Long Call, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
DIAGONAL BEAR PUT SPREAD Vs LONG GUTS - Risk & Reward
DIAGONAL BEAR PUT SPREAD
LONG GUTS
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Price of Underlying - Strike Price of Long Call - Net Premium Paid OR Strike Price of Long Put - Price of Underlying - Premium Paid
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Net Premium Paid + Strike Price of Long Put - Strike Price of Long Call + Commissions Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs LONG GUTS - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
LONG GUTS
Similar Strategies
Bear Put Spread and Bear Call Spread
Short Put Ladder, Strip, Strap
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• More commission involved than simply buying call or put option. • Expensive.
Advantages
The Risk is limited.
• Investors can get unlimited profit if the underlying asset goes up or down. • Ability to profit no matter if the market goes in either direction. • Limited loss.
