Compare Strategies
| LONG PUT BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Long Put Butterfly Option StrategyThe Long Put Butterfly is a neutral strategy where a trader will be bearish on the volatility i.e. he thinks the market will have sideways kind of movement and will not rally sharply in either direction in the near future. This strategy involves sale of 2 ATM Put Options, buy 1 ITM and 1 OTM Put Option. The risk and reward are limited. |
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. |
LONG PUT BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - Details
| LONG PUT BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | PE (Put Option) | PE (Put Option) |
| Number Of Positions | 4 | 2 |
| Strategy Level | Advance | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Limited | Limited |
| Breakeven Point | Upper Breakeven Point = Strike Price of Highest Strike Long Put - Net Premium Paid, Lower Breakeven Point = Strike Price of Lowest Strike Long Put + Net Premium Paid | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
LONG PUT BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| LONG PUT BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | The Long Put Butterfly is a neutral strategy where a trader will be bearish on the volatility i.e. he thinks the market will have sideways kind of movement and will not rally sharply in either direction in the near future. | 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 | Buy 1 OTM Put, Sell 2 ATM Puts, Buy 1 ITM Put | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Upper Breakeven Point = Strike Price of Highest Strike Long Put - Net Premium Paid, Lower Breakeven Point = Strike Price of Lowest Strike Long Put + Net Premium Paid | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
LONG PUT BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| LONG PUT BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Strike Price of Higher Strike Long Put - Strike Price of Short Put - Net Premium Paid - Commissions Paid | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | When Price of Underlying <= Strike Price of Lower Strike Long Put OR Price of Underlying >= Strike Price of Higher Strike Long Put | When the stock trades up above the long-term put strike price. |
| Risk | Limited | Limited |
| Reward | Limited | Limited |
LONG PUT BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| LONG PUT BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Iron Condors, Iron Butterfly | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Risk is higher than reward. • When the underlying price is in between the two breakeven points, time decay hurts the position. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Limited maximum loss. • Unlimited profit potential, risk only limited to loss of premium. • Benefits from low volatility. | The Risk is limited. |