Comparision (DIAGONAL BEAR PUT SPREAD
VS COVERED CALL)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
COVERED CALL
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.
Mr. X owns Reliance Shares and expects the price to rise in the near future. Mr. X is entitled to receive dividends for the shares he hold in cash market. Covered Call Strategy involves selling of OTM Call Option of the same underlying asset. The OTM Call Option Strike Price will generally be the price, where Mr. X will look to get out o ..
DIAGONAL BEAR PUT SPREAD Vs COVERED CALL - Details
DIAGONAL BEAR PUT SPREAD
COVERED CALL
Market View
Bearish
Bullish
Type (CE/PE)
PE (Put Option)
CE (Call 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.
Purchase Price of Underlying- Premium Received
DIAGONAL BEAR PUT SPREAD Vs COVERED CALL - When & How to use ?
DIAGONAL BEAR PUT SPREAD
COVERED CALL
Market View
Bearish
Bullish
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
An investor has a short term neutral view on the asset and for this reason holds the asset long and has a short position to generate income.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
(Buy Underlying) (Sell OTM Call 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- Premium Received
DIAGONAL BEAR PUT SPREAD Vs COVERED CALL - Risk & Reward
DIAGONAL BEAR PUT SPREAD
COVERED CALL
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
[Call Strike Price - Stock Price Paid] + Premium Received
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Purchase Price of Underlying - Price of Underlying) + Premium Received
Risk
Limited
Unlimited
Reward
Limited
Limited
DIAGONAL BEAR PUT SPREAD Vs COVERED CALL - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
COVERED CALL
Similar Strategies
Bear Put Spread and Bear Call Spread
Bull Call Spread
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Unlimited risk, limited reward. • Inability to earn interest on the proceed used to buy the underlying stock.
Advantages
The Risk is limited.
• Profit from option premium, rise in the underlying stock and dividends on the stock. • Allows you to generate income from your holding. • Profit when underlying stock price rise, move sideways or marginal fall.
