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Long put vs bear put spread
- Thread starter a529612
- Start date
I would go with the spread personally unless you have a better/more clear thought as to how far and how fast/slow the bearish move will take place.
If you anticipate a downward draft to the underlying (downward moves usually happen faster than upward as a rule of thumb) and can watch/baby sit the position, a simple put would be good, maybe best. If you just anticipate a lingering downward move over the next month, not so much event/news driven, then the spread usually will work a little bit better.
To me it sounds like you have a good feeling as to the direction and amount, but not so much the time period.
Of course this is just a from the hip response since there are many more nuances that could be discussed, but I'm sure there will be others willing to address in more detail as well as specifics.
Good Luck,
and as always, just my .02
If you anticipate a downward draft to the underlying (downward moves usually happen faster than upward as a rule of thumb) and can watch/baby sit the position, a simple put would be good, maybe best. If you just anticipate a lingering downward move over the next month, not so much event/news driven, then the spread usually will work a little bit better.
To me it sounds like you have a good feeling as to the direction and amount, but not so much the time period.
Of course this is just a from the hip response since there are many more nuances that could be discussed, but I'm sure there will be others willing to address in more detail as well as specifics.
Good Luck,
and as always, just my .02
although not one of your choices if you a moderately bearish look into a calendar/ratio spread...
Quote from a529612:
Which one is a better strategy to use if you are moderately bearish: long ITM put vs bear put spread?
This depends on all the other factors. For example;
Is IV relatively high/low?
What is the underlying price target?
When and how will you capture profits?
In case of an adverse move, what is your contingency plan?
I assume you're asking if you should sell a put on your long ITM put or not, with the same expiration.
Think about it this way: the difference between these two positions is exactly your short leg. Your vertical spread is less affected by changes in the implied volatility, has less exposure to loss (underlying goes against you), limits your profit to the spread width.
A general rule of thumb for spreads is to open the short leg closer to the money when IV is high, and to have the short leg closer to the money when the IV is low (or to go with the straight option).
You may want to consider their synthetic equivalents too: short underlying + call, and the bear call spread respectively.
Think about it this way: the difference between these two positions is exactly your short leg. Your vertical spread is less affected by changes in the implied volatility, has less exposure to loss (underlying goes against you), limits your profit to the spread width.
A general rule of thumb for spreads is to open the short leg closer to the money when IV is high, and to have the short leg closer to the money when the IV is low (or to go with the straight option).
You may want to consider their synthetic equivalents too: short underlying + call, and the bear call spread respectively.
Quote from a529612:
Which one is a better strategy to use if you are moderately bearish: long ITM put vs bear put spread?