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.
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. ..
PUT BACKSPREAD Vs BULL CALL SPREAD - When & How to use ?
PUT BACKSPREAD
BULL CALL SPREAD
Market View
Bearish
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.
Action
Buy ITM Call Option, Sell OTM Call Option
Breakeven Point
Strike price of purchased call + net premium paid
PUT BACKSPREAD Vs BULL CALL SPREAD - Risk & Reward
PUT BACKSPREAD
BULL CALL SPREAD
Maximum Profit Scenario
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Maximum Loss Scenario
Net Premium Paid
Risk
Limited
Limited
Reward
Unlimited
Limited
PUT BACKSPREAD Vs BULL CALL SPREAD - Strategy Pros & Cons
PUT BACKSPREAD
BULL CALL SPREAD
Similar Strategies
Collar
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.
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.
