This strategy is implemented when a trader is bullish on the underlying stock/index in the short term say 2 months or so. A trader will write one Near Month OTM Call Option and buy one next Month OTM Call Option, thereby reducing the cost of purchase, with the same strike price of the same underlying asset. This strategy is used when a trader wants to make prof ..
Stock Price when long call value is equal to net debit.
SHORT PUT Vs BULL CALENDER SPREAD - Risk & Reward
SHORT PUT
BULL CALENDER SPREAD
Maximum Profit Scenario
Premium received in your account when you sell the Put Option.
You have unlimited profit potential to the upside.
Maximum Loss Scenario
Unlimited (When the price of the underlying falls.)
Max Loss = Premium Paid + Commissions Paid
Risk
Unlimited
Limited
Reward
Limited
Unlimited
SHORT PUT Vs BULL CALENDER SPREAD - Strategy Pros & Cons
SHORT PUT
BULL CALENDER SPREAD
Similar Strategies
Bull Put Spread, Short Starddle
The Collar, Bull Put Spread
Disadvantage
• Unlimited risk. • Huge losses if the price of the underlying stock falls steeply.
• Limited profit even if underlying asset rallies. • If the short call options are assigned when the underlying asset rallies then losses can be sustained.
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.
• Limited losses to the net debit. • Enable trader to book profit even if underlying asset stays stagnant. • If the market trends reverse, cashing in from stock price movement at limited risk.