Comparision (DIAGONAL BEAR PUT SPREAD
VS RATIO CALL SPREAD)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
RATIO CALL SPREAD
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.
As the name suggests, a ratio of 2:1 is followed i.e. buy 1 ITM Call and simultaneously sell OTM Calls double the number of ITM Calls (In this case 2). This strategy is used by trader who is neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited since he is ..
DIAGONAL BEAR PUT SPREAD Vs RATIO CALL SPREAD - Details
DIAGONAL BEAR PUT SPREAD
RATIO CALL SPREAD
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option)
Number Of Positions
2
3
Strategy Level
Beginners
Beginners
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.
Upper Breakeven Point = Strike Price of Short Calls + (Points of Maximum Profit / Number of Uncovered Calls), Lower Breakeven Point = Strike Price of Long Call +/- Net Premium Paid or Received
DIAGONAL BEAR PUT SPREAD Vs RATIO CALL SPREAD - When & How to use ?
DIAGONAL BEAR PUT SPREAD
RATIO CALL SPREAD
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 used by trader who is neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited since he is selling two calls.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Buy 1 ITM Call, Sell 2 OTM Calls
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Upper Breakeven Point = Strike Price of Short Calls + (Points of Maximum Profit / Number of Uncovered Calls), Lower Breakeven Point = Strike Price of Long Call +/- Net Premium Paid or Received
DIAGONAL BEAR PUT SPREAD Vs RATIO CALL SPREAD - Risk & Reward
DIAGONAL BEAR PUT SPREAD
RATIO CALL SPREAD
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Strike Price of Short Call - Strike Price of Long Call + Net Premium Received - Commissions Paid
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Price of Underlying - Strike Price of Short Calls - Max Profit + Commissions Paid
Risk
Limited
Unlimited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs RATIO CALL SPREAD - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
RATIO CALL SPREAD
Similar Strategies
Bear Put Spread and Bear Call Spread
Variable Ratio Write
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Unlimited potential loss. • Complex strategy with limited profit.
Advantages
The Risk is limited.
• Downside risk is almost zero. • Investors can book profit from share prices moving within given limits. • Trader can maximise profit when the share closes at the upper breakeven point.
