If the trader is bearish on market and bullish in volatility, he will implement this strategy. However the trader can be neutral in nature i.e. indifferent if the market moves in either of the direction, this strategy will make profits, but uptrend will give a capped income than downtrend which will give unlimited returns.
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 ..
PUT BACKSPREAD Vs BEAR CALL SPREAD - When & How to use ?
PUT BACKSPREAD
BEAR CALL 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.
Action
Buy OTM Call Option, Sell ITM Call Option
Breakeven Point
Strike Price of Short Call + Net Premium Received
PUT BACKSPREAD Vs BEAR CALL SPREAD - Risk & Reward
PUT BACKSPREAD
BEAR CALL SPREAD
Maximum Profit Scenario
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Limited
Reward
Unlimited
Limited
PUT BACKSPREAD Vs BEAR CALL SPREAD - Strategy Pros & Cons
PUT BACKSPREAD
BEAR CALL SPREAD
Similar Strategies
Bear Put Spread, Bull Call Spread
Disadvantage
• Limited amount of profit. • Margin requirement, more commission charges.
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.
