Compare Strategies
| SHORT CALL | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Short Call Option StrategyA trader shorts or writes a Call Option when he feels that underlying stock price is likely to go down. Selling Call Option is a strategy preferred for experienced traders. However this strategy is very risky in nature. If the stock rallies on the upside, your risk becomes potentially unquantifiable and unlimited. If the strategy |
Diagonal Bear Put SpreadWhen 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. |
SHORT CALL Vs DIAGONAL BEAR PUT SPREAD - Details
| SHORT CALL | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bearish | Bearish |
| Type (CE/PE) | CE (Call Option) | PE (Put Option) |
| Number Of Positions | 1 | 2 |
| Strategy Level | Advance | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Unlimited | Limited |
| Breakeven Point | Strike Price of Short Call + Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT CALL Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| SHORT CALL | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bearish | Bearish |
| When to use? | It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying. | 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 |
| Action | Sell or Write Call Option | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Strike Price of Short Call + Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT CALL Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| SHORT CALL | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Max Profit = Premium Received | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
SHORT CALL Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| SHORT CALL | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Covered Put, Covered Calls | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • With the help of this strategy, traders can book profit from falling prices in the underlying asset. • Less investment, more profit. • Traders can book profit when underlying stock price fall, move sideways or rise by a small amount. | The Risk is limited. |