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
This strategy is just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
BEAR CALL SPREAD Vs SHORT STRADDLE - When & How to use ?
BEAR CALL SPREAD
SHORT STRADDLE
Market View
Bearish
Neutral
When to use?
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.
This strategy is work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Buy OTM Call Option, Sell ITM Call Option
Sell Call Option, Sell Put Option
Breakeven Point
Strike Price of Short Call + Net Premium Received
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
BEAR CALL SPREAD Vs SHORT STRADDLE - Risk & Reward
BEAR CALL SPREAD
SHORT STRADDLE
Maximum Profit Scenario
Max Profit = Net Premium Received - Commissions Paid
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Unlimited
Reward
Limited
Limited
BEAR CALL SPREAD Vs SHORT STRADDLE - Strategy Pros & Cons
BEAR CALL SPREAD
SHORT STRADDLE
Similar Strategies
Bear Put Spread, Bull Call Spread
Short Strangle
Disadvantage
• Limited amount of profit. • Margin requirement, more commission charges.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
Advantages
• 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.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .