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
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 ..
SHORT CALL Vs BULL PUT SPREAD - When & How to use ?
SHORT CALL
BULL PUT SPREAD
Market View
Bearish
Bullish
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.
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.
Action
Sell or Write Call Option
Buy OTM Put Option, Sell ITM Put Option
Breakeven Point
Strike Price of Short Call + Premium Received
Strike price of short put - net premium paid
SHORT CALL Vs BULL PUT SPREAD - Risk & Reward
SHORT CALL
BULL PUT SPREAD
Maximum Profit Scenario
Max Profit = Premium Received
Max Profit = Net Premium Received
Maximum Loss Scenario
Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT CALL Vs BULL PUT SPREAD - Strategy Pros & Cons
SHORT CALL
BULL PUT SPREAD
Similar Strategies
Covered Put, Covered Calls
Bull Call Spread, Bear Put Spread, Collar
Disadvantage
• Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected.
• Limited profit potential. • In loss situations, time decay may go against you.
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.
• 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.
