When a trader is moderately bearish on the market he can implement this strategy. Bear-Put-Spread involves buying of ITM Put Option and selling of an OTM Put Option. If prices fall, the ITM Put option starts making profits and the OTM Put option also adds to profit at a certain extent if the expiry price stays above the OTM strike. However, if it falls below the OTM
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 ..
BEAR PUT SPREAD Vs BEAR CALL SPREAD - When & How to use ?
BEAR PUT SPREAD
BEAR CALL SPREAD
Market View
Bearish
Bearish
When to use?
The bear call spread options 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 used when you are bearish in market view. The strategy minimizes your risk in the event of prime movements going against your expectations.
Action
Buy ITM Put Option, Sell OTM Put Option
Buy OTM Call Option, Sell ITM Call Option
Breakeven Point
Strike Price of Long Put - Net Premium
Strike Price of Short Call + Net Premium Received
BEAR PUT SPREAD Vs BEAR CALL SPREAD - Risk & Reward
BEAR PUT SPREAD
BEAR CALL SPREAD
Maximum Profit Scenario
Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Max Loss = Net Premium Paid.
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Limited
Reward
Limited
Limited
BEAR PUT SPREAD Vs BEAR CALL SPREAD - Strategy Pros & Cons
BEAR PUT SPREAD
BEAR CALL SPREAD
Similar Strategies
Bear Call Spread, Bull Call Spread
Bear Put Spread, Bull Call Spread
Disadvantage
• Limited profit. • Early assignment risk.
• Limited amount of profit. • Margin requirement, more commission charges.
Advantages
• If the strike price, expiration date or underlying stocks are rightly chosen then risk of losses would be limited to the net premium paid. • This strategy works well in declining markets. • Limited risk.
• 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.
