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.
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. ..
LONG CALL Vs BULL CALL SPREAD - When & How to use ?
LONG CALL
BULL 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.)
Bullish
When to use?
This strategy work when an investor expect the underlying instrument move in upward direction.
This strategy is used when an investor is Bullish in the market but expect the underlying to gain mildly in near future.
Action
Buying Call option
Buy ITM Call Option, Sell OTM Call Option
Breakeven Point
Strike price + Premium
Strike price of purchased call + net premium paid
LONG CALL Vs BULL CALL SPREAD - Risk & Reward
LONG CALL
BULL CALL SPREAD
Maximum Profit Scenario
Underlying Asset close above from the strike price on expiry.
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Maximum Loss Scenario
Premium Paid
Net Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Limited
LONG CALL Vs BULL CALL SPREAD - Strategy Pros & Cons
LONG CALL
BULL CALL SPREAD
Similar Strategies
Protective Put
Collar
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 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
• Less investment, more profit. • Unlimited profit with limited risk. • High leverage than simply owning the stock.
• 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.
