Comparision (DIAGONAL BEAR PUT SPREAD
VS SHORT CALL BUTTERFLY)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
SHORT CALL BUTTERFLY
About Strategy
Diagonal Bear Put Spread
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.
This strategy is opposite of the Long Call Butterfly Strategy, a trader expects the market to remain range bound in Long Call Butterfly, but here he expects the market to move beyond strike boundaries in Short Call Butterfly. If the trader is bullish on the market’s volatility, he will implement this strategy. Here also there should be equal distance between the ..
DIAGONAL BEAR PUT SPREAD Vs SHORT CALL BUTTERFLY - Details
DIAGONAL BEAR PUT SPREAD
SHORT CALL BUTTERFLY
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option)
Number Of Positions
2
4
Strategy Level
Beginners
Advance
Reward Profile
Limited
Limited
Risk Profile
Limited
Limited
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Break-even = Lower Strike Price + Net Premium, Upper Break-even = Higher Strike Price - Net Premium
DIAGONAL BEAR PUT SPREAD Vs SHORT CALL BUTTERFLY - When & How to use ?
DIAGONAL BEAR PUT SPREAD
SHORT CALL BUTTERFLY
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 meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Buy 2 ATM Call, Sell 1 ITM Call, Sell 1 OTM Call
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Break-even = Lower Strike Price + Net Premium, Upper Break-even = Higher Strike Price - Net Premium
DIAGONAL BEAR PUT SPREAD Vs SHORT CALL BUTTERFLY - Risk & Reward
DIAGONAL BEAR PUT SPREAD
SHORT CALL BUTTERFLY
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
The profit is limited to the net premium received.
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Higher strike price- Lower Strike Price - Net Premium
Risk
Limited
Limited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs SHORT CALL BUTTERFLY - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
SHORT CALL BUTTERFLY
Similar Strategies
Bear Put Spread and Bear Call Spread
Long Straddle, Long Call Butterfly
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Limited rewards, usually offer smaller return. • Profitability depends on the significant movement of stocks and options prices.
Advantages
The Risk is limited.
• Even if the market is highly volatile, the risk exposure remains limited. • Without any extra investment, you can receive your premium. • Able to book profits even when the price movement cannot be predicted.
