Comparision (DIAGONAL BEAR PUT SPREAD
VS LONG COMBO)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
LONG COMBO
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.
Long Combo Option Trading Strategy is implemented when a trader is bullish in nature and expects the stock price to rise in the near future. Here a trader will sell one ‘Out of the Money’ Put Option and buy one ‘Out of the Money’ Call Option. This trade will require less capital to implement since the amount required to buy the call will be covered by the amount received ..
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Call Strike + Net Premium
DIAGONAL BEAR PUT SPREAD Vs LONG COMBO - When & How to use ?
DIAGONAL BEAR PUT SPREAD
LONG COMBO
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 is used when an investor Bullish on an underlying but don't have the required capital or the risk appetite to invest directly into it.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Sell OTM Put Option, Buy OTM Call Option
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Call Strike + Net Premium
DIAGONAL BEAR PUT SPREAD Vs LONG COMBO - Risk & Reward
DIAGONAL BEAR PUT SPREAD
LONG COMBO
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Underlying asset goes down and Put option exercised
Risk
Limited
Unlimited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs LONG COMBO - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
LONG COMBO
Similar Strategies
Bear Put Spread and Bear Call Spread
-
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
The Risk is limited.
• Capital investment is low and returns are high. • Unlimited reward, returns keep on increasing with the increase on stock price. • Leverage facility provided by this strategy is very beneficial.
