Short Diagonal Bear Call Spread

Usage scenarios

When you expect the stock price to drop moderately, you can use a subscription option with a short diagonal bear call spread.

How to build

• Sell recent month's call options at lower exercise prices

• Buy a long-month call option with a high trading price

The underlying assets and quantity of the two options are the same.

Strategy brief

The purpose of the opposite bear market spread of subscription options is to simultaneously profit from the loss of time in recent months and the rise in asset prices in the past month.

Ideally, after an investor opens a position, the price of the underlying asset fluctuates smoothly and remains between the two exercise prices until the option expires in recent months.

After the recent month's options expired, the strategy left only long positions with long-month call options. If the underlying asset starts to rise sharply at this time, investors can profit twice.

In this strategy, the price of a recent bullish option with a low trading price is theoretically higher than the price of a long-month bullish option with a high trading price, so there was a net inflow of capital at the beginning of the strategy's establishment.

After the recent month's options expire, you can choose to simultaneously close one-month options or open other options to form a new option strategy according to different market conditions.

Furthermore, when other conditions are equal, the size of the price difference between the two exercise prices, the length of the date difference, and volatility together determine the size of potential profits and losses.

Overall, this is an advanced strategy that requires comprehensive dynamic consideration of the three dimensions of direction, time value, and volatility, and is not suitable for novice options users.

Risks and benefits

Maximum benefit: Limited. It is a net option premium

Maximum loss: Limited. If at the maturity date of the recent month, the stock price is equal to the previous month's exercise price, then the biggest loss will occur. This is a dynamic value, which depends on the dynamic value of the long-month option at this time, and this price is affected by volatility and cannot be confirmed in advance. The formula is: high exercise price - low exercise price+price of a long month option when it expires in the recent month+net option premium.

Break-even point: only one. It is located between the two exercise prices. It is also a dynamic value, determined by the price of the long-month option when it expires in the recent month.