Bull Put Spread option trading strategy is used by a trader who is bullish in nature and expects the underlying asset to move in an upward trend in the near future. This strategy includes buying of an ‘Out of the Money’ Put Option and selling of ‘In the Money’ Put Option of the same underlying asset and the same expiration date. When you write a Put, you will receive prem
This strategy is simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. The ..
BULL PUT SPREAD Vs PROTECTIVE CALL - When & How to use ?
BULL PUT SPREAD
PROTECTIVE CALL
Market View
Bullish
Bearish
When to use?
Bull Put Spread strategy is used when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.
This strategy is implemented when a trader is bearish on the market and expects to go down.
Action
Buy OTM Put Option, Sell ITM Put Option
Buy 1 ATM Call
Breakeven Point
Strike price of short put - net premium paid
Sale Price of Underlying + Premium Paid
BULL PUT SPREAD Vs PROTECTIVE CALL - Risk & Reward
BULL PUT SPREAD
PROTECTIVE CALL
Maximum Profit Scenario
Max Profit = Net Premium Received
Sale Price of Underlying - Price of Underlying - Premium Paid
Maximum Loss Scenario
Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received
Premium Paid + Call Strike Price - Sale Price of Underlying + Commissions Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
BULL PUT SPREAD Vs PROTECTIVE CALL - Strategy Pros & Cons
BULL PUT SPREAD
PROTECTIVE CALL
Similar Strategies
Bull Call Spread, Bear Put Spread, Collar
Put Backspread, Long Put
Disadvantage
• Limited profit potential. • In loss situations, time decay may go against you.
• Profitable when market moves as expected. • Not good for beginners.
Advantages
• Benefit from the time decay in profit positions but harmful in loss positions. • Profitable when underlying stock price rises, move sideways or marginal drop. • Reduce the downside risk.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
