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 Call Spread option trading strategy is used by a trader who is bullish in nature and expects the underlying asset to give decent returns in the near future. This strategy includes buying of an ‘In The Money’ Call Option and selling of ‘Deep Out Of the Money’ Call Option of the same underlying asset and the same expiration date. ..
SHORT CALL Vs BULL CALL SPREAD - When & How to use ?
SHORT CALL
BULL CALL 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.
This strategy is used when an investor is Bullish in the market but expect the underlying to gain mildly in near future.
Action
Sell or Write Call Option
Buy ITM Call Option, Sell OTM Call Option
Breakeven Point
Strike Price of Short Call + Premium Received
Strike price of purchased call + net premium paid
SHORT CALL Vs BULL CALL SPREAD - Risk & Reward
SHORT CALL
BULL CALL SPREAD
Maximum Profit Scenario
Max Profit = Premium Received
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Maximum Loss Scenario
Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
Net Premium Paid
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT CALL Vs BULL CALL SPREAD - Strategy Pros & Cons
SHORT CALL
BULL CALL SPREAD
Similar Strategies
Covered Put, Covered Calls
Collar
Disadvantage
• Unlimited risk to the upside underlying stocks. • Potential loss more than the premium collected.
• Limited profit potential to the higher strike call sold if the underlying stock price rises. • Maximum profit only if stock rises to the higher of 2 strike prices selected.
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.
• Allows you to reduce risk and cost of your investment. • When placing the spread, exit strategy is pre-determined in advance. • Risk is limited to the net premium paid.
