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 Combo Option Trading Strategy is implemented when a trader is bullish in nature and expects the stock price to rise in the near future. Here a trader will sell one ‘Out of the Money’ Put Option and buy one ‘Out of the Money’ Call Option. This trade will require less capital to implement since the amount required to buy the call will be covered by the amount received ..
BULL CALL SPREAD Vs LONG COMBO - When & How to use ?
BULL CALL SPREAD
LONG COMBO
Market View
Bullish
Bullish
When to use?
This strategy is used when an investor is Bullish in the market but expect the underlying to gain mildly in near future.
This strategy is used when an investor Bullish on an underlying but don't have the required capital or the risk appetite to invest directly into it.
Action
Buy ITM Call Option, Sell OTM Call Option
Sell OTM Put Option, Buy OTM Call Option
Breakeven Point
Strike price of purchased call + net premium paid
Call Strike + Net Premium
BULL CALL SPREAD Vs LONG COMBO - Risk & Reward
BULL CALL SPREAD
LONG COMBO
Maximum Profit Scenario
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Underlying asset goes up and Call option exercised
Maximum Loss Scenario
Net Premium Paid
Underlying asset goes down and Put option exercised
Risk
Limited
Unlimited
Reward
Limited
Unlimited
BULL CALL SPREAD Vs LONG COMBO - Strategy Pros & Cons
BULL CALL SPREAD
LONG COMBO
Similar Strategies
Collar
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Disadvantage
• 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.
• Losses can keep on increasing as the price of stock goes down. • High risk strategy.
Advantages
• 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.
• Capital investment is low and returns are high. • Unlimited reward, returns keep on increasing with the increase on stock price. • Leverage facility provided by this strategy is very beneficial.
