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 PUT Vs BULL CALL SPREAD - When & How to use ?
SHORT PUT
BULL CALL SPREAD
Market View
Bullish
Bullish
When to use?
This strategy works well when you're Bullish that the price of the underlying will not fall beyond a certain level.
This strategy is used when an investor is Bullish in the market but expect the underlying to gain mildly in near future.
Action
Sell Put Option
Buy ITM Call Option, Sell OTM Call Option
Breakeven Point
Strike Price - Premium
Strike price of purchased call + net premium paid
SHORT PUT Vs BULL CALL SPREAD - Risk & Reward
SHORT PUT
BULL CALL SPREAD
Maximum Profit Scenario
Premium received in your account when you sell the Put Option.
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Maximum Loss Scenario
Unlimited (When the price of the underlying falls.)
Net Premium Paid
Risk
Unlimited
Limited
Reward
Limited
Limited
SHORT PUT Vs BULL CALL SPREAD - Strategy Pros & Cons
SHORT PUT
BULL CALL SPREAD
Similar Strategies
Bull Put Spread, Short Starddle
Collar
Disadvantage
• Unlimited risk. • Huge losses if the price of the underlying stock falls steeply.
• 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
• Benefit from time decay. • Less capital required than buying the stock outright. • Profit when underlying stock price rise, move sideways or drop by a relatively small account.
• 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.
