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.
Strip Strategy is the opposite of Strap Strategy. When a trader is bearish on the market and bullish on volatility then he will implement this strategy by buying two ATM Put Options & one ATM Call Option, of the same strike price, expiry date & underlying asset. If the prices move downwards then this strategy will make more profits compared to short straddle because of the ..
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
DIAGONAL BEAR PUT SPREAD Vs STRIP - When & How to use ?
DIAGONAL BEAR PUT SPREAD
STRIP
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
When a trader is bearish on the market and bullish on volatility then he will implement this strategy.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Buy 1 ATM Call, Buy 2 ATM Puts
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven Point = Strike Price of Calls/Puts + Net Premium Paid, Lower Breakeven Point = Strike Price of Calls/Puts - (Net Premium Paid/2)
DIAGONAL BEAR PUT SPREAD Vs STRIP - Risk & Reward
DIAGONAL BEAR PUT SPREAD
STRIP
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Price of Underlying - Strike Price of Calls - Net Premium Paid OR 2 x (Strike Price of Puts - Price of Underlying) - Net Premium Paid
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Net Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs STRIP - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
STRIP
Similar Strategies
Bear Put Spread and Bear Call Spread
Strap, Short Put Ladder
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
Expensive., The share price must change significantly to generate profit., High Bid/Offer spread can have a negative influence on the position.
Advantages
The Risk is limited.
Profit is generated when the share price changes in any direction., Limited loss., The profit is potentially unlimited when share prices are moving.
