Compare Strategies
| STRAP | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Strap Option StrategyStrap Strategy is similar to Long Straddle, the only difference is the quantity traded. A trader will buy two Call Options and one Put Options. In this strategy, a trader is very bullish on the market and volatility on upside but wants to hedge himself in case the stock doesn’t perform as per his expectations. This strategy will make more profits compared to long straddle sin |
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. |
STRAP Vs DIAGONAL BEAR PUT SPREAD - Details
| STRAP | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | CE (Call Option) + PE (Put Option) | PE (Put Option) |
| Number Of Positions | 3 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Profit Achieved When Price of Underlying > Strike Price of Calls/Puts + (Net Premium Paid/2) OR Price of Underlying < Strike Price of Calls/Puts - Net Premium Paid | Limited |
| Risk Profile | Max Loss Occurs When Price of Underlying = Strike Price of Calls/Puts | Limited |
| Breakeven Point | Strike Price of Calls/Puts + (Net Premium Paid/2) | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
STRAP Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| STRAP | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | This strategy is used when the investor is bullish on the stock and expects volatility in the near future. | 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 2 ATM Call Option, Buy 1 ATM Put Option | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Strike Price of Calls/Puts + (Net Premium Paid/2) | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
STRAP Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| STRAP | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | UNLIMITED | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Net Premium Paid | When the stock trades up above the long-term put strike price. |
| Risk | Limited | Limited |
| Reward | Unlimited | Limited |
STRAP Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| STRAP | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Strip, Short Put Ladder, Short Call Ladder | Bear Put Spread and Bear Call Spread |
| Disadvantage | • To generate profit, there should be significant change in share price. • Expensive strategy. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Limited loss. • If share prices are moving then traders can book unlimited profit. • A trader can still book profit if the underlying falls substantially. | The Risk is limited. |