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 just the opposite of Long Straddle. A trader should adopt this strategy when he expects less volatility in the near future. Here, a trader will sell one Call Option & one Put Option of the same strike price, same expiry date and of the same underlying asset. If the stock/index hovers around the same levels then both the options will expire worthless an ..
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
BULL CALL SPREAD Vs SHORT STRADDLE - When & How to use ?
BULL CALL SPREAD
SHORT STRADDLE
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 work well when an investor expect a flat market in the coming days with very less movement in the prices of underlying asset.
Action
Buy ITM Call Option, Sell OTM Call Option
Sell Call Option, Sell Put Option
Breakeven Point
Strike price of purchased call + net premium paid
Lower Breakeven = Strike Price of Put - Net Premium, Upper breakeven = Strike Price of Call+ Net Premium
BULL CALL SPREAD Vs SHORT STRADDLE - Risk & Reward
BULL CALL SPREAD
SHORT STRADDLE
Maximum Profit Scenario
(Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid
Max Profit = Net Premium Received - Commissions Paid
Maximum Loss Scenario
Net Premium Paid
Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received
Risk
Limited
Unlimited
Reward
Limited
Limited
BULL CALL SPREAD Vs SHORT STRADDLE - Strategy Pros & Cons
BULL CALL SPREAD
SHORT STRADDLE
Similar Strategies
Collar
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.
• Unlimited risk. • If the price of the underlying asset moves in either direction then huge losses can occur.
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.
• A trader can earn profit even when there is no volatility in the market . • Allows you to benefit from double time decay. • Trader can collect premium from puts and calls option .