Compare Strategies
| IRON BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
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| About Strategy |
Iron Butterfly Option StrategyThis strategy is implemented when a trader is bearish on the volatility of market and neutral on the market movements. A trader will buy 1 OTM Put Option, sell 1 ATM Put Option, sell 1 ATM Call Option, buy 1 OTM Call Option. Due to offsetting of long and short positions, this strategy bags limited profit with limited risk.
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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. |
IRON BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - Details
| IRON BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | CE (Call Option) + PE (Put Option) | PE (Put Option) |
| Number Of Positions | 4 | 2 |
| Strategy Level | Advance | Beginners |
| Reward Profile | Limited | Limited |
| Risk Profile | Limited | Limited |
| Breakeven Point | Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
IRON BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| IRON BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | This strategy is implemented when a trader is bearish on the volatility of market and neutral on the market movements. | 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 1 OTM Put, Sell 1 ATM Put, Sell 1 ATM Call, Buy 1 OTM Call | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Upper Breakeven Point = Strike Price of Short Call + Net Premium Received, Lower Breakeven Point = Strike Price of Short Put - Net Premium Received | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
IRON BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| IRON BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Maximum Profit Scenario | Net Premium Received - Commissions Paid | 'Premiums received - Initial premium to execute + Strike price - Stock Price on final month |
| Maximum Loss Scenario | Strike Price of Long Call - Strike Price of Short Call - Net Premium Received + Commissions Paid | When the stock trades up above the long-term put strike price. |
| Risk | Limited | Limited |
| Reward | Limited | Limited |
IRON BUTTERFLY Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| IRON BUTTERFLY | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Long Put Butterfly, Neutral Calendar Spread | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Large commissions involved. • Probability of losses are higher. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | • Less amount of capital investment, steady income with low risk. • Traders can predict maximum loss and profit. • Versatile strategy, investors can transform position into bear call spread or bull put spread easily. | The Risk is limited. |