Compare Strategies
| DIAGONAL BEAR PUT SPREAD | COVERED CALL | |
|---|---|---|
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| About Strategy |
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. |
Covered Call Option StrategyMr. 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. |