This is one of the basic strategies as it involves entering into one position i.e. buying the Call Option only. Any investor who buys the Call Option will be bullish in nature and would be expecting the market to give decent returns in the near future.
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.
LONG CALL Vs BULL CALENDER SPREAD - Risk & Reward
LONG CALL
BULL CALENDER SPREAD
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
You have unlimited profit potential to the upside.
Maximum Loss Scenario
Premium Paid
Max Loss = Premium Paid + Commissions Paid
Risk
Limited
Limited
Reward
Unlimited
Unlimited
LONG CALL Vs BULL CALENDER SPREAD - Strategy Pros & Cons
LONG CALL
BULL CALENDER SPREAD
Similar Strategies
Protective Put
The Collar, Bull Put Spread
Disadvantage
• In this strategy, there is not protection against the underlying stock falling in value. • 100% loss if the strike price, expiration dates or underlying stocks are badly chosen.
• 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
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• 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.
