Compare Strategies
| SHORT PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Short Put Option StrategyA trader will short put if he is bullish in nature and expects the underlying asset not to fall below a certain level. Risk: Losses will be potentially unlimited if the stock skyrockets above the strike price of put. |
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. |
SHORT PUT Vs DIAGONAL BEAR PUT SPREAD - Details
| SHORT PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bullish | Bearish |
| Type (CE/PE) | PE (Put Option) | PE (Put Option) |
| Number Of Positions | 1 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Unlimited | Limited |
| Breakeven Point | Strike Price - Premium | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT PUT Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| SHORT PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Bullish | Bearish |
| When to use? | This strategy works well when you're Bullish that the price of the underlying will not fall beyond a certain level. | 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 | Sell Put Option | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Strike Price - Premium | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
SHORT PUT Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| SHORT PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Premium received in your account when you sell the Put Option. | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Unlimited (When the price of the underlying falls.) | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
SHORT PUT Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| SHORT PUT | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Bull Put Spread, Short Starddle | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Unlimited risk. • Huge losses if the price of the underlying stock falls steeply. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Benefit from time decay. • Less capital required than buying the stock outright. • Profit when underlying stock price rise, move sideways or drop by a relatively small account. | The Risk is limited. |