Compare Strategies
| SHORT STRANGLE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Short Strangle Option StrategyThis strategy is similar to Short Straddle; the only difference is of the strike prices at which the positions are built. Short Strangle involves selling of one OTM Call Option and selling of one OTM Put Option, of the same expiry date and same underlying asset. Here the probability of making profits is more as there is a spread between the two strike prices, and if |
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 STRANGLE Vs DIAGONAL BEAR PUT SPREAD - Details
| SHORT STRANGLE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | CE (Call Option) + PE (Put Option) | PE (Put Option) |
| Number Of Positions | 2 | 2 |
| Strategy Level | Advance | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Unlimited | Limited |
| Breakeven Point | Lower Break-even = Strike Price of Put - Net Premium, Upper Break-even = Strike Price of Call+ Net Premium | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT STRANGLE Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| SHORT STRANGLE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | This strategy is perfect in a neutral market scenario when the underlying is expected to be less volatile. | 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 OTM Call, Sell OTM Put | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Lower Break-even = Strike Price of Put - Net Premium, Upper Break-even = Strike Price of Call+ Net Premium | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT STRANGLE Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| SHORT STRANGLE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Maximum Profit = Net Premium Received | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
SHORT STRANGLE Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| SHORT STRANGLE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Short Straddle, Long Strangle | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Unlimited loss is associated with this strategy, not recommended for beginners. • Limited reward amount. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Higher chance of profitability due to selling of OTM options. • Advantage from double time decay and a contraction in volatility. • Traders can book profit when underlying asset stays within a tight trading range. | The Risk is limited. |