Comparision (DIAGONAL BEAR PUT SPREAD
VS REVERSE IRON BUTTERFLY)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
REVERSE IRON BUTTERFLY
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.
Reverse Iron Butterfly as the name suggests is the opposite of Iron Butterfly. In Reverse Iron Butterfly, a trader is bullish on volatility and expects the market to make significant move in the near future in either directions. Here a trader will buy 1 ATM Call Option, sell 1 OTM Call Option, buy 1 ATM Put Option, sell 1 OTM Put Option. This strategy also bags lim ..
DIAGONAL BEAR PUT SPREAD Vs REVERSE IRON BUTTERFLY - Details
DIAGONAL BEAR PUT SPREAD
REVERSE IRON BUTTERFLY
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option) + PE (Put Option)
Number Of Positions
2
4
Strategy Level
Beginners
Advance
Reward Profile
Limited
Limited
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.
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
DIAGONAL BEAR PUT SPREAD Vs REVERSE IRON BUTTERFLY - When & How to use ?
DIAGONAL BEAR PUT SPREAD
REVERSE IRON BUTTERFLY
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
This strategy is used when a trader is bullish on volatility and expects the market to make significant move in the near future in either directions.
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.
Upper Breakeven Point = Strike Price of Long Call + Net Premium Paid, Lower Breakeven Point = Strike Price of Long Put - Net Premium Paid
DIAGONAL BEAR PUT SPREAD Vs REVERSE IRON BUTTERFLY - Risk & Reward
DIAGONAL BEAR PUT SPREAD
REVERSE IRON BUTTERFLY
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Strike Price of Short Call (or Long Put) - Strike Price of Long Call (or Short Put) - Net Premium Paid - Commissions 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
Limited
DIAGONAL BEAR PUT SPREAD Vs REVERSE IRON BUTTERFLY - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
REVERSE IRON BUTTERFLY
Similar Strategies
Bear Put Spread and Bear Call Spread
Short Put Butterfly, Short Condor
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Potential loss is higher than gain, complex strategy. • Not suitable for beginners.
Advantages
The Risk is limited.
• Able to profit whether stocks move in either direction up or down. • This strategy can be used by option traders who cannot use credit spreads. • Predictable maximum loss and profits, volatile strategy.
