Compare Strategies
| COVERED COMBINATION | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Covered Combination Option StrategyThis strategy involves selling OTM Call & Put Options and buying the underlying asset in either cash or futures market. It is also known as Covered Strangle as the profits are capped and risk is potentially unlimited. Risk: Un |
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. |
COVERED COMBINATION Vs DIAGONAL BEAR PUT SPREAD - Details
| COVERED COMBINATION | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bullish | 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 | (Purchase Price of Underlying + Strike Price of Short Put - Net Premium Received) / 2 | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
COVERED COMBINATION Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| COVERED COMBINATION | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bullish | Bearish |
| When to use? | This strategy is mainly suited for investors who are moderately bullish on a stock and are comfortable with increasing their position in the event of a price decline. | 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 1 OTM Call, Sell 1 OTM Put | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | (Purchase Price of Underlying + Strike Price of Short Put - Net Premium Received) / 2 | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
COVERED COMBINATION Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| COVERED COMBINATION | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received - Commissions Paid | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Purchase Price of Underlying + Strike Price of Short Put - (2 x Price of Underlying) - Max Profit + Commissions Paid | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
COVERED COMBINATION Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| COVERED COMBINATION | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Stock Repair Strategy | Bear Put Spread and Bear Call Spread |
| Disadvantage | Combinations can be profitable in sideways or rising markets. Greater combined net credit increases downside protection and potential return. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | Limited Maximum Profit on the upside. Covered Combinations should only be traded on stocks that are bullish. | The Risk is limited. |