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.
A Strangle is similar to Straddle. In Strangle, a trader will purchase one OTM Call Option and one OTM Put Option, of the same expiry date and the same underlying asset. This strategy will reduce the entry cost for trader and it is also cheaper than straddle. A trader will make profits, if the market moves sharply in either direction and gives extra-ordinary returns in the ..
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
BULL CALL SPREAD Vs LONG STRANGLE - When & How to use ?
BULL CALL SPREAD
LONG STRANGLE
Market View
Bullish
Neutral
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 in special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.
Action
Buy ITM Call Option, Sell OTM Call Option
Buy OTM Call Option, Buy OTM Put Option
Breakeven Point
Strike price of purchased call + net premium paid
Lower Breakeven Point = Strike Price of Put - Net Premium, Upper Breakeven Point = Strike Price of Call + Net Premium
BULL CALL SPREAD Vs LONG STRANGLE - Risk & Reward
BULL CALL SPREAD
LONG STRANGLE
Maximum Profit Scenario
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid
Maximum Loss Scenario
Net Premium Paid
Max Loss = Net Premium Paid
Risk
Limited
Limited
Reward
Limited
Unlimited
BULL CALL SPREAD Vs LONG STRANGLE - Strategy Pros & Cons
BULL CALL SPREAD
LONG STRANGLE
Similar Strategies
Collar
Long Straddle, Short Strangle
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.
• Require significant price movement to book profit. • Traders can lose more money if the underlying asset stayed stagnant.
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.
• Able to book profit, no matter if the underlying asset goes in either direction. • Limited loss to the debit paid. • If the underlying asset continues to move in one direction then you can book Unlimited profit .
