Comparision (DIAGONAL BEAR PUT SPREAD
VS PROTECTIVE COLLAR)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
PROTECTIVE COLLAR
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 implemented when the investor requires downside protection for the short - to medium term but at lower cost. Buying protective puts can be an expensive proposition and writing OTM calls can defray the cost of the puts quite substantially. Protective Collar is considered as bearish to neutral strategy. In this strategy risk and reward is both are limited. This ..
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE COLLAR - Details
DIAGONAL BEAR PUT SPREAD
PROTECTIVE COLLAR
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option) + PE (Put Option)
Number Of Positions
2
2
Strategy Level
Beginners
Beginners
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.
Purchase Price of Underlying + Net Premium Paid
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE COLLAR - When & How to use ?
DIAGONAL BEAR PUT SPREAD
PROTECTIVE COLLAR
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 implemented when the investor requires downside protection for the short - to medium term but at lower cost.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
• Short 1 Call Option, • Long 1 Put Option
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Purchase Price of Underlying + Net Premium Paid
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE COLLAR - Risk & Reward
DIAGONAL BEAR PUT SPREAD
PROTECTIVE COLLAR
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
• Call strike - stock purchase price - net premium paid + net credit received
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
• Stock purchase price - put strike - net premium paid - put strike + net credit received
Risk
Limited
Limited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs PROTECTIVE COLLAR - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
PROTECTIVE COLLAR
Similar Strategies
Bear Put Spread and Bear Call Spread
Bull Put Spread, Bull Call Spread
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
