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
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 Vs BEAR PUT SPREAD - When & How to use ?
BEAR CALL SPREAD
BEAR PUT SPREAD
Market View
Bearish
Bearish
When to use?
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.
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.
Action
Buy OTM Call Option, Sell ITM Call Option
Buy ITM Put Option, Sell OTM Put Option
Breakeven Point
Strike Price of Short Call + Net Premium Received
Strike Price of Long Put - Net Premium
BEAR CALL SPREAD Vs BEAR PUT SPREAD - Risk & Reward
BEAR CALL SPREAD
BEAR PUT SPREAD
Maximum Profit Scenario
Max Profit = Net Premium Received - Commissions Paid
Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.
Maximum Loss Scenario
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Max Loss = Net Premium Paid.
Risk
Limited
Limited
Reward
Limited
Limited
BEAR CALL SPREAD Vs BEAR PUT SPREAD - Strategy Pros & Cons
BEAR CALL SPREAD
BEAR PUT SPREAD
Similar Strategies
Bear Put Spread, Bull Call Spread
Bear Call Spread, Bull Call Spread
Disadvantage
• Limited amount of profit. • Margin requirement, more commission charges.
• Limited profit. • Early assignment risk.
Advantages
• 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.
• 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.