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.
Strap Strategy is similar to Long Straddle, the only difference is the quantity traded. A trader will buy two Call Options and one Put Options. In this strategy, a trader is very bullish on the market and volatility on upside but wants to hedge himself in case the stock doesn’t perform as per his expectations. This strategy will make more profits compared to long straddle sin ..
Profit Achieved When Price of Underlying > Strike Price of Calls/Puts + (Net Premium Paid/2) OR Price of Underlying < Strike Price of Calls/Puts - Net Premium Paid
Risk Profile
Limited
Max Loss Occurs When Price of Underlying = Strike Price of Calls/Puts
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Strike Price of Calls/Puts + (Net Premium Paid/2)
DIAGONAL BEAR PUT SPREAD Vs STRAP - When & How to use ?
DIAGONAL BEAR PUT SPREAD
STRAP
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 the investor is bullish on the stock and expects volatility in the near future.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Buy 2 ATM Call Option, Buy 1 ATM Put Option
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Strike Price of Calls/Puts + (Net Premium Paid/2)
DIAGONAL BEAR PUT SPREAD Vs STRAP - Risk & Reward
DIAGONAL BEAR PUT SPREAD
STRAP
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
UNLIMITED
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Net Premium Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs STRAP - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
STRAP
Similar Strategies
Bear Put Spread and Bear Call Spread
Strip, Short Put Ladder, Short Call Ladder
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• To generate profit, there should be significant change in share price. • Expensive strategy.
Advantages
The Risk is limited.
• Limited loss. • If share prices are moving then traders can book unlimited profit. • A trader can still book profit if the underlying falls substantially.
