Comparision (DIAGONAL BEAR PUT SPREAD
VS LONG STRANGLE)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
LONG STRANGLE
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.
A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the ..
DIAGONAL BEAR PUT SPREAD Vs LONG STRANGLE - Details
DIAGONAL BEAR PUT SPREAD
LONG STRANGLE
Market View
Bearish
Neutral
Type (CE/PE)
PE (Put Option)
CE (Call Option) + PE (Put Option)
Number Of Positions
2
2
Strategy Level
Beginners
Beginners
Reward Profile
Limited
Unlimited
Risk Profile
Limited
Limited
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
DIAGONAL BEAR PUT SPREAD Vs LONG STRANGLE - When & How to use ?
DIAGONAL BEAR PUT SPREAD
LONG STRANGLE
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 in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Buy OTM Call Option, Buy OTM Put Option
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
DIAGONAL BEAR PUT SPREAD Vs LONG STRANGLE - Risk & Reward
DIAGONAL BEAR PUT SPREAD
LONG STRANGLE
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Max Loss = Net Premium Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs LONG STRANGLE - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
LONG STRANGLE
Similar Strategies
Bear Put Spread and Bear Call Spread
Long Straddle, Short Strangle
Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
Advantages
The Risk is limited.
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
