Compare Strategies
| PROTECTIVE COLLAR | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
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| About Strategy |
Protective Collar Strategy This Strategy is implemented when the investor requires downside protection for the short - to medium term but at lower cost. Buying protective puts can be an expensive proposition and writing OTM calls can defray the cost of the puts quite substantially. Protective Collar is considered as bearish to neutral strategy. In this strategy risk and reward is both are limited. This |
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. |
PROTECTIVE COLLAR Vs DIAGONAL BEAR PUT SPREAD - Details
| PROTECTIVE COLLAR | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | CE (Call Option) + PE (Put Option) | PE (Put Option) |
| Number Of Positions | 2 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Limited | Limited |
| Breakeven Point | Purchase Price of Underlying + Net Premium Paid | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
PROTECTIVE COLLAR Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| PROTECTIVE COLLAR | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | This Strategy is implemented when the investor requires downside protection for the short - to medium term but at lower cost. | 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 | • Short 1 Call Option, • Long 1 Put Option | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Purchase Price of Underlying + Net Premium Paid | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
PROTECTIVE COLLAR Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| PROTECTIVE COLLAR | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | • Call strike - stock purchase price - net premium paid + net credit received | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | • Stock purchase price - put strike - net premium paid - put strike + net credit received | When the stock trades up above the long-term put strike price. |
| Risk | Limited | Limited |
| Reward | Limited | Limited |
PROTECTIVE COLLAR Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| PROTECTIVE COLLAR | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Bull Put Spread, Bull Call Spread | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Potential profit is lower or limited. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | The Risk is limited. | The Risk is limited. |