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.
Collar Strategy is an extension to Covered Call Strategy. A trader, who is bullish in nature but has a very low risk appetite and wants to mitigate his risk will implement the Collar Strategy. Collar involves buying of stock in either Cash/Futures Market, buying an ATM Put Option & selling an OTM Call Option. The expiry dates of the op ..
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received
Maximum Loss Scenario
Net Premium Paid
Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received
Risk
Limited
Limited
Reward
Limited
Limited
BULL CALL SPREAD Vs THE COLLAR - Strategy Pros & Cons
BULL CALL SPREAD
THE COLLAR
Similar Strategies
Collar
Call Spread, Bull Put Spread
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.
• Limited profit. • A trader can book more profit without this strategy if the prices goes high.
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.
• This strategy protects the losses on underlying asset. • Risk gets limited if the price of the stocks goes down. • Trader can get ownership benefits life dividend and voting rights.
