InvestorQ : I understand bull call; what do I do if I am moderately bearish on the stock?
Moii Chavate made post

I understand bull call; what do I do if I am moderately bearish on the stock?

Answer
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Sam Eswaran answered.
2 years ago


The downside of the covered put strategy is that the upside risk is open. That problem can be resolved using a bear put strategy. This is also a moderately bearish strategy. What you do in this case is you buy a higher strike put and sell a lower strike put. So your maximum loss is limited to your net premium. In the case of Cummins, you can buy a 960 put option at Rs.25 and sell a 930 put option at Rs.10. Your maximum loss will be the net cost of Rs.15. Your maximum profit will be Rs.15 at the price level of Rs.930. This is an improvement on the covered put strategy in the sense that the upside risk is also covered. Whether you are bearish on the stock with conviction or you are bearish to a moderate extent, options offer you a solution to play each of these themes with appropriate combinations.