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Diagonal Bear Put Spread-Bearish Strategy

Short-Call-Option-trading-strategy

Explanation

A trader implements this strategy when he holds a neutral to somewhat bearish stance on the near-month expiry of the underlying but bearish on the long term, he will apply Diagonal Bear Put Spread. The strategy involves buying higher strike price (OTM) long-term puts in next month / far month expiry and simultaneously shorting an equal number of near-month (ITM) puts of the same underlying stock with a lower strike. The strategy bags limited rewards with limited risk.

Risk

Limited

Reward

Limited

Construction

Sell 1 near-Month OTM Put Option

Buy 1 next-Month ITM Put Option

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    Option Type Expiry Date Strike Price LTP Action No. Of Lots
    PUT 27/04/2023 16900.0 203 Buy 2
    PUT 25/05/2023 17100.0 361 Sell 1

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