A trader shorts or writes a Call Option when he feels that underlying stock price is likely to go down. Selling Call Option is a strategy preferred for experienced traders.
However this strategy is very risky in nature. If the stock rallies on the upside, your risk becomes potentially unquantifiable and unlimited. If the strategy
Bear Call Spread option trading strategy is used by a trader who is bearish in nature and expects the underlying asset to dip in the near future. This strategy includes buying of an ‘Out of the Money’ Call Option and selling one ‘In the Money’ Call Option of the same underlying asset and the same expiration date. When you write a call, you receive premium thereby r ..
SHORT CALL Vs BEAR CALL SPREAD - When & How to use ?
SHORT CALL
BEAR CALL SPREAD
Market View
Bearish
Bearish
When to use?
It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.
This strategy is used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
Action
Sell or Write Call Option
Buy OTM Call Option, Sell ITM Call Option
Breakeven Point
Strike Price of Short Call + Premium Received
Strike Price of Short Call + Net Premium Received
SHORT CALL Vs BEAR CALL SPREAD - Risk & Reward
SHORT CALL
BEAR CALL SPREAD
Maximum Profit Scenario
Max Profit = Premium Received
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT CALL Vs BEAR CALL SPREAD - Strategy Pros & Cons
SHORT CALL
BEAR CALL SPREAD
Similar Strategies
Covered Put, Covered Calls
Bear Put Spread, Bull Call Spread
Disadvantage
• Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected.
• Limited amount of profit. • Margin requirement, more commission charges.
Advantages
• With the help of this strategy, traders can book profit from falling prices in the underlying asset. • Less investment, more profit. • Traders can book profit when underlying stock price fall, move sideways or rise by a small amount.
• This strategy takes advantage of time decay. • Investors can get profit in a flat market scenario. • Investors can earn options premium income with a lower degree of risk.
