Comparision (DIAGONAL BEAR PUT SPREAD
VS CALL BACKSPREAD)
Compare Strategies
DIAGONAL BEAR PUT SPREAD
CALL BACKSPREAD
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.
This strategy is adopted by traders who are bullish in nature. He expects market and volatility to rise in the near future. A trader need not be direction specific here (i.e. an upward or downward trend, but a small bias towards an uptrend should always be present, as the gains will be much higher once the market moves up r ..
DIAGONAL BEAR PUT SPREAD Vs CALL BACKSPREAD - Details
DIAGONAL BEAR PUT SPREAD
CALL BACKSPREAD
Market View
Bearish
Bullish
Type (CE/PE)
PE (Put Option)
CE (Call Option)
Number Of Positions
2
3
Strategy Level
Beginners
Advance
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 = strike price of the short call, Upper breakeven = strike price of long calls + point of maximum loss
DIAGONAL BEAR PUT SPREAD Vs CALL BACKSPREAD - When & How to use ?
DIAGONAL BEAR PUT SPREAD
CALL BACKSPREAD
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
This strategy is used when the investor expects the price of the stock to rise in the future.
Action
Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option
Sell 1 ITM Call, BUY 2 OTM Call
Breakeven Point
This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven.
Lower breakeven = strike price of the short call, Upper breakeven = strike price of long calls + point of maximum loss
DIAGONAL BEAR PUT SPREAD Vs CALL BACKSPREAD - Risk & Reward
DIAGONAL BEAR PUT SPREAD
CALL BACKSPREAD
Maximum Profit Scenario
'Premiums received - Initial premium to execute + Strike price - Stock Price on final month
Unlimited profit potential if the stock goes in upward direction.
Maximum Loss Scenario
When the stock trades up above the long-term put strike price.
Strike Price of long call - Strike Price of short call - Net premium received
Risk
Limited
Limited
Reward
Limited
Unlimited
DIAGONAL BEAR PUT SPREAD Vs CALL BACKSPREAD - Strategy Pros & Cons
DIAGONAL BEAR PUT SPREAD
CALL BACKSPREAD
Similar Strategies
Bear Put Spread and Bear Call Spread
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Disadvantage
Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads.
