Compare Strategies
| RATIO CALL SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Ratio Call Spread Option StrategyAs 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 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. |
RATIO CALL SPREAD Vs DIAGONAL BEAR PUT SPREAD - Details
| RATIO CALL SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | CE (Call Option) | PE (Put Option) |
| Number Of Positions | 3 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Unlimited | Limited |
| Breakeven Point | 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 | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
RATIO CALL SPREAD Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| RATIO CALL SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | 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. | 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 | Buy 1 ITM Call, Sell 2 OTM Calls | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | 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 | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
RATIO CALL SPREAD Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| RATIO CALL SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Strike Price of Short Call - Strike Price of Long Call + Net Premium Received - Commissions Paid | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Price of Underlying - Strike Price of Short Calls - Max Profit + Commissions Paid | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
RATIO CALL SPREAD Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| RATIO CALL SPREAD | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Variable Ratio Write | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Unlimited potential loss. • Complex strategy with limited profit. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • 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. | The Risk is limited. |