Comparision (DIAGONAL BEAR PUT SPREAD
VS RISK REVERSAL)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
RISK REVERSAL
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 protects an investor from unfavourable price movements in the position but limits the profits can be made on that position. A risk reversal is a hedging strategy that protects a long or short position by using put and call options. In this one option is buying and other is written. In this strategy the trader has to pay a premium, while the written option prod ..
DIAGONAL BEAR PUT SPREAD Vs RISK REVERSAL - Details
DIAGONAL BEAR PUT SPREAD
RISK REVERSAL
Market View
Bearish
Bullish
Type (CE/PE)
PE (Put Option)
CE (Call Option) + PE (Put Option)
Number Of Positions
2
2
Strategy Level
Beginners
Advance
Reward Profile
Limited
Unlimited
Risk Profile
Limited
Unlimited
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Premium received - Put Strike Price
DIAGONAL BEAR PUT SPREAD Vs RISK REVERSAL - When & How to use ?
DIAGONAL BEAR PUT SPREAD
RISK REVERSAL
Market View
Bearish
Bullish
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 can be used for hedging. When an investor want to protect long or short position by using a call and put option.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
This strategy work when an investor want to hedge their position by buying a put option and selling a call option.
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Premium received - Put Strike Price
DIAGONAL BEAR PUT SPREAD Vs RISK REVERSAL - Risk & Reward
DIAGONAL BEAR PUT SPREAD
RISK REVERSAL
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
You have unlimited profit potential to the upside.
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
You have nearly unlimited downside risk as well because you are short the put
Risk
Limited
Unlimited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs RISK REVERSAL - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
RISK REVERSAL
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.
