When a trader is moderately bearish on the market he can implement this strategy. Bear-Put-Spread involves buying of ITM Put Option and selling of an OTM Put Option. If prices fall, the ITM Put option starts making profits and the OTM Put option also adds to profit at a certain extent if the expiry price stays above the OTM strike. However, if it falls below the OTM
This strategy is just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
BEAR PUT SPREAD Vs SHORT STRADDLE - When & How to use ?
BEAR PUT SPREAD
SHORT STRADDLE
Market View
Bearish
Neutral
When to use?
The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
This strategy is work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Buy ITM Put Option, Sell OTM Put Option
Sell Call Option, Sell Put Option
Breakeven Point
Strike Price of Long Put - Net Premium
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
BEAR PUT SPREAD Vs SHORT STRADDLE - Risk & Reward
BEAR PUT SPREAD
SHORT STRADDLE
Maximum Profit Scenario
Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Max Loss = Net Premium Paid.
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Unlimited
Reward
Limited
Limited
BEAR PUT SPREAD Vs SHORT STRADDLE - Strategy Pros & Cons
BEAR PUT SPREAD
SHORT STRADDLE
Similar Strategies
Bear Call Spread, Bull Call Spread
Short Strangle
Disadvantage
• Limited profit. • Early assignment risk.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
• If the strike price, expiration date or underlying stocks are rightly chosen then risk of losses would be limited to the net premium paid. • This strategy works well in declining markets. • Limited risk.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .