Comparision (DIAGONAL BEAR PUT SPREAD
VS SHORT STRADDLE)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
SHORT STRADDLE
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 just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
DIAGONAL BEAR PUT SPREAD Vs SHORT STRADDLE - Details
DIAGONAL BEAR PUT SPREAD
SHORT STRADDLE
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option) + PE (Put Option)
Number Of Positions
2
2
Strategy Level
Beginners
Advance
Reward Profile
Limited
Limited
Risk Profile
Limited
Unlimited
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
DIAGONAL BEAR PUT SPREAD Vs SHORT STRADDLE - When & How to use ?
DIAGONAL BEAR PUT SPREAD
SHORT STRADDLE
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 work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Sell Call Option, Sell Put Option
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
DIAGONAL BEAR PUT SPREAD Vs SHORT STRADDLE - Risk & Reward
DIAGONAL BEAR PUT SPREAD
SHORT STRADDLE
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Unlimited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs SHORT STRADDLE - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
SHORT STRADDLE
Similar Strategies
Bear Put Spread and Bear Call Spread
Short Strangle
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
The Risk is limited.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .
