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.
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 ..
LONG CALL Vs BEAR CALL SPREAD - When & How to use ?
LONG CALL
BEAR CALL SPREAD
Market View
Bullish (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.)
Bearish
When to use?
This strategy work when an investor expect the underlying instrument move in upward direction.
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
Buying Call option
Buy OTM Call Option, Sell ITM Call Option
Breakeven Point
Strike price + Premium
Strike Price of Short Call + Net Premium Received
LONG CALL Vs BEAR CALL SPREAD - Risk & Reward
LONG CALL
BEAR CALL SPREAD
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Premium Paid
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Limited
Reward
Unlimited
Limited
LONG CALL Vs BEAR CALL SPREAD - Strategy Pros & Cons
LONG CALL
BEAR CALL SPREAD
Similar Strategies
Protective Put
Bear Put Spread, Bull Call 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 amount of profit. • Margin requirement, more commission charges.
Advantages
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• 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.
