Compare Strategies
| RATIO PUT WRITE | DIAGONAL BEAR PUT SPREAD | |
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| About Strategy |
Ratio Put Write Option StrategyThis strategy is implemented by selling (short) the underlying asset in the cash/futures market. Simultaneously, sell ATM Puts double the number of long quantity. This strategy is used by a trader who in neutral on the market and bearish on the volatility in the near future. Here profits will be capped up to the premium amount and risk will be potentially unlimited. |
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. |
RATIO PUT WRITE Vs DIAGONAL BEAR PUT SPREAD - Details
| RATIO PUT WRITE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| Type (CE/PE) | PE (Put Option) | PE (Put Option) |
| Number Of Positions | 2 | 2 |
| Strategy Level | Beginners | Beginners |
| Reward Profile | Max Profit Achieved When Price of Underlying = Strike Price of Short Puts | Limited |
| Risk Profile | Loss Occurs When Price of Underlying < Strike Price of Short Put - Net Premium Received OR Price of Underlying > Strike Price of Short Put + Net Premium Received | Limited |
| Breakeven Point | Upper Breakeven Point = Strike Price of Short Puts + Points of Maximum Profit Lower Breakeven Point = Strike Price of Short Puts - Points of Maximum Profit | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
RATIO PUT WRITE Vs DIAGONAL BEAR PUT SPREAD - When & How to use ?
| RATIO PUT WRITE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Market View | Neutral | Bearish |
| When to use? | This strategy is implemented by selling (short) the underlying asset in the cash/futures market. This strategy is used by a trader who in neutral on the market and bearish on the 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 | Sell 2 ATM Puts | Sell 1 Near-Month OTM Put Option, Buy 1 Mid-Month ITM Put Option |
| Breakeven Point | Upper Breakeven Point = Strike Price of Short Puts + Points of Maximum Profit Lower Breakeven Point = Strike Price of Short Puts - Points of Maximum Profit | This is a dynamic trade with many possible scenarios and future trades, it is impossible to calculate a breakeven. |
RATIO PUT WRITE Vs DIAGONAL BEAR PUT SPREAD - Risk & Reward
| RATIO PUT WRITE | 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 | Price of Underlying - Sale Price of Underlying - Net Premium Received OR Strike Price of Short Put - Price of Underlying - Net Premium Received + Commissions Paid | When the stock trades up above the long-term put strike price. |
| Risk | Unlimited | Limited |
| Reward | Limited | Limited |
RATIO PUT WRITE Vs DIAGONAL BEAR PUT SPREAD - Strategy Pros & Cons
| RATIO PUT WRITE | DIAGONAL BEAR PUT SPREAD | |
|---|---|---|
| Similar Strategies | Short Strangle and Short Straddle | Bear Put Spread and Bear Call Spread |
| Disadvantage | • Potential loss is higher than gain. • Limited profit. | Higher commissions due to additional trades. , Changes maximum profit potential of call or put spreads. |
| Advantages | The Risk is limited. |