Comparision (DIAGONAL BEAR PUT SPREAD
VS PROTECTIVE CALL)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
PROTECTIVE CALL
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 simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. The ..
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE CALL - Details
DIAGONAL BEAR PUT SPREAD
PROTECTIVE CALL
Market View
Bearish
Bearish
Type (CE/PE)
PE (Put Option)
CE (Call Option)
Number Of Positions
2
1
Strategy Level
Beginners
Beginners
Reward Profile
Limited
Unlimited
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.
Sale Price of Underlying + Premium Paid
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE CALL - When & How to use ?
DIAGONAL BEAR PUT SPREAD
PROTECTIVE CALL
Market View
Bearish
Bearish
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 when a trader is bearish on the market and expects to go down.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Buy 1 ATM Call
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Sale Price of Underlying + Premium Paid
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE CALL - Risk & Reward
DIAGONAL BEAR PUT SPREAD
PROTECTIVE CALL
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Sale Price of Underlying - Price of Underlying - Premium Paid
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Premium Paid + Call Strike Price - Sale Price of Underlying + Commissions Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE CALL - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
PROTECTIVE CALL
Similar Strategies
Bear Put Spread and Bear Call Spread
Put Backspread, Long Put
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Profitable when market moves as expected. • Not good for beginners.
Advantages
The Risk is limited.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
