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Bear Put Spread Vs Short Strangle (Sell Strangle) Options Trading Strategy Comparison

Compare Bear Put Spread and Short Strangle (Sell Strangle) options trading strategies. Find similarities and differences between Bear Put Spread and Short Strangle (Sell Strangle) strategies. Find the best options trading strategy for your trading needs.

Bear Put Spread Vs Short Strangle (Sell Strangle)

  Bear Put Spread Short Strangle (Sell Strangle)
Bear Put Spread Logo Short Strangle (Sell Strangle) Logo
About Strategy The Bear Put strategy involves selling a Put Option while simultaneously buying a Put option. Contrary to Bear Call Spread, here you pay the higher premium and receive the lower premium. So there is a net debit in premium. Your risk is capped at the difference in premiums while your profit will be limited to the difference in strike prices of Put Option minus net premiums. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear put debit spread as a net debit is taken upon entering the trade. This strategy has a limited risk as well as limited rewards. How to use the bear put spread options strategy? The bear put spread strategy looks like... Read More The Short Strangle (or Sell Strangle) is a neutral strategy wherein a Slightly OTM Call and a Slightly OTM Put Options are sold simultaneously of same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience a very little volatility in the near term. It is a limited profit and unlimited risk strategy. The maximum profit earn is the net premium received. The maximum loss is achieved when the underlying moves either significantly upwards or downwards at expiration. A net credit is taken to enter into this strategy. For this reason, the Short Strangles are Credit Spreads. The usual Short Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY S... Read More
Market View Bearish Neutral
Strategy Level Advance Advance
Options Type Put Call + Put
Number of Positions 2 2
Risk Profile Limited Unlimited
Reward Profile Limited Limited
Breakeven Point Strike Price of Long Put - Net Premium two break-even points

When and how to use Bear Put Spread and Short Strangle (Sell Strangle)?

  Bear Put Spread Short Strangle (Sell Strangle)
When to use?

The bear call spread options strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.

The Short Strangle is perfect in a neutral market scenario when the underlying is expected to be less volatile.

Market View Bearish

When you are expecting the price of the underlying to moderately drop.

Neutral

When you are expecting little volatility and movement in the price of the underlying.

Action
  • Buy ITM Put Option
  • Sell OTM Put Option

  • Sell OTM Call
  • Sell OTM Put

Sell 1 out-of-the-money put and sell 1 out-of-the-money call which belongs to same underlying asset and has the same expiry date.

Breakeven Point Strike Price of Long Put - Net Premium

The breakeven point is achieved when the price of the underlying is equal to strike price of long Put minus net premium.

two break-even points

A strangle has two break-even points.

Lower Break-even = Strike Price of Put - Net Premium

Upper Break-even = Strike Price of Call+ Net Premium"

Compare Risks and Rewards (Bear Put Spread Vs Short Strangle (Sell Strangle))

  Bear Put Spread Short Strangle (Sell Strangle)
Risks Limited

The maximum loss is limited to net premium paid. It occurs when the price of the underlying is less than strike price of long Put..

Max Loss = Net Premium Paid.

Unlimited

The maximum loss is unlimited in this strategy. You will incur losses when the price of the underlying moves significantly either upwards or downwards at expiration.

Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received

Or

Loss = Strike Price of Short Put - Price of Underlying - Net Premium Received

Rewards Limited

The maximum profit is achieved when the strike price of short Put is greater than the price of the underlying..

Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.

Limited

For maximum profit, the price of the underlying on expiration date must trade between the strike prices of the options. The maximum profit is limited to the net premium received while selling the Options.

Maximum Profit = Net Premium Received

Maximum Profit Scenario

Underlying goes down and both options exercised

Both Option not exercised

Maximum Loss Scenario

Underlying goes up and both options not exercised

One Option exercised

Pros & Cons or Bear Put Spread and Short Strangle (Sell Strangle)

  Bear Put Spread Short Strangle (Sell Strangle)
Advantages

Risk is limited. It reduces the cost of investment.

The strategy offers higher chance of profitability in comparison to Short Straddle due to selling of OTM Options.

Disadvantage

The profit is limited.

Limited reward with high risk exposure.

Simillar Strategies Bear Call Spread, Bull Call Spread Short Straddle, Long Strangle