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 PUT Vs BEAR CALL SPREAD - When & How to use ?
SHORT PUT
BEAR CALL SPREAD
Market View
Bullish
Bearish
When to use?
This strategy works well when you're Bullish that the price of the underlying will not fall beyond a certain level.
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 Put Option
Buy OTM Call Option, Sell ITM Call Option
Breakeven Point
Strike Price - Premium
Strike Price of Short Call + Net Premium Received
SHORT PUT Vs BEAR CALL SPREAD - Risk & Reward
SHORT PUT
BEAR CALL SPREAD
Maximum Profit Scenario
Premium received in your account when you sell the Put Option.
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Unlimited (When the price of the underlying falls.)
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT PUT Vs BEAR CALL SPREAD - Strategy Pros & Cons
SHORT PUT
BEAR CALL SPREAD
Similar Strategies
Bull Put Spread, Short Starddle
Bear Put Spread, Bull Call Spread
Disadvantage
• Unlimited risk. • Huge losses if the price of the underlying stock falls steeply.
• Limited amount of profit. • Margin requirement, more commission charges.
Advantages
• Benefit from time decay. • Less capital required than buying the stock outright. • Profit when underlying stock price rise, move sideways or drop by a relatively small account.
• 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.
