Comparision (DIAGONAL BEAR PUT SPREAD
VS THE COLLAR)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
THE COLLAR
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.
Collar Strategy is an extension to Covered Call Strategy. A trader, who is bullish in nature but has a very low risk appetite and wants to mitigate his risk will implement the Collar Strategy. Collar involves buying of stock in either Cash/Futures Market, buying an ATM Put Option & selling an OTM Call Option. The expiry dates of the op ..
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Price of Features - Call Premium + Put Premium
DIAGONAL BEAR PUT SPREAD Vs THE COLLAR - When & How to use ?
DIAGONAL BEAR PUT SPREAD
THE COLLAR
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
It should be used only in case where trader is certain about the bearish market view.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Price of Features - Call Premium + Put Premium
DIAGONAL BEAR PUT SPREAD Vs THE COLLAR - Risk & Reward
DIAGONAL BEAR PUT SPREAD
THE COLLAR
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received
Risk
Limited
Limited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs THE COLLAR - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
THE COLLAR
Similar Strategies
Bear Put Spread and Bear Call Spread
Call Spread, Bull Put Spread
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Limited profit. • A trader can book more profit without this strategy if the prices goes high.
Advantages
The Risk is limited.
• This strategy protects the losses on underlying asset. • Risk gets limited if the price of the stocks goes down. • Trader can get ownership benefits life dividend and voting rights.
