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.
This strategy is simply the reversal of the Synthetic Call Strategy. This strategy is implemented when a trader is bearish on the market and expects to go down. Trader will short underlying stock in the cash market and buy either an ATM Call Option or OTM Call Option. The Call Option is bought to protect / hedge the upside risk on the short position. The ..
• 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.
• Profitable when market moves as expected. • Not good for beginners.
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.
• Limited risk if the market moves in opposite direction as expected. • Allows you to keep open a profitable position to make further profits. • Unlimited profit potential.
