I think I did address this point in the past ..but lets compare the two case (I have changed the strike to 4500 and 4400 PUT to make it more resonable for today's mkt condition)

Risk = 28 Rs. .when mkt remains above 4500 level

Breakeven point = Spot below 4472 level

Reward = depends on your view about the market about how far it can go down

Risk = 10 Rs.when mkt remians above 4500 level

Breakeven point = Spot below 4490 level

Reward = Max 100 Rs. if market is below 4400 level,

So the main difference comes in Lower Risk (from 28 to 10 rs), and Favourable breakeven point that u get into profit early (4490 from 4472 level).

As a professional, trading is all about Lowering the Risk and Increasing the odds/probablity of our success. That's what the spread gives agianst simple Long position.

On the flip side, though the rewards seems limited to max 100 Rs... But lets look at this a bit more closely..

Lets say, if you have 5000 rs to take a trade, then u can take 3 contract in case 1. (3*~30*50 = 4500 rs)

But in case 2, u can go for 9 contracts(9*~10*50 = 4500 rs), So u are still risking the same 5000 Rs money but now your profit potential goes up by 3 times i.e. max u can make is 9*50*(100-10) = 45000.

To make same money in case 1, mkt has to go below 4172 level = 3*50*(4500 - 4172-28).

Now what is more likely, mkt falling to 4399 level and giving u 45k profit or 4172 level ?

Question of margin comes in here. But that is different topic.

Hope you get clearer picture now.. As suggested by LT and DanPickUp. plz go thru basic material on other sites and ask an doubt here..

Happy Trading

**Case 1**= Buy 4500 PUT @ 28 Rs (as of 8/Sept closing price)Risk = 28 Rs. .when mkt remains above 4500 level

Breakeven point = Spot below 4472 level

Reward = depends on your view about the market about how far it can go down

**Case 2**= Buy 4500 PUT @ 28 Rs and Sell 4400 PUT @18 rs (as of 8/Sept closing price)Risk = 10 Rs.when mkt remians above 4500 level

Breakeven point = Spot below 4490 level

Reward = Max 100 Rs. if market is below 4400 level,

So the main difference comes in Lower Risk (from 28 to 10 rs), and Favourable breakeven point that u get into profit early (4490 from 4472 level).

As a professional, trading is all about Lowering the Risk and Increasing the odds/probablity of our success. That's what the spread gives agianst simple Long position.

On the flip side, though the rewards seems limited to max 100 Rs... But lets look at this a bit more closely..

Lets say, if you have 5000 rs to take a trade, then u can take 3 contract in case 1. (3*~30*50 = 4500 rs)

But in case 2, u can go for 9 contracts(9*~10*50 = 4500 rs), So u are still risking the same 5000 Rs money but now your profit potential goes up by 3 times i.e. max u can make is 9*50*(100-10) = 45000.

To make same money in case 1, mkt has to go below 4172 level = 3*50*(4500 - 4172-28).

Now what is more likely, mkt falling to 4399 level and giving u 45k profit or 4172 level ?

Question of margin comes in here. But that is different topic.

Hope you get clearer picture now.. As suggested by LT and DanPickUp. plz go thru basic material on other sites and ask an doubt here..

Happy Trading

I see the point and it looks fantastic. What happens on sept closing the market remains above 4500 level.

<1> the 4400/4500 put difference not necessarily be 10 till such time

<2> and to square off.. we may have to shell some more(or gain).

may I request to elaborate the possibilities.