Chittorgarh.com Logo
Loading...
Compare Strategies:

Bear Call Spread Vs Covered Strangle Options Trading Strategy Comparison

Compare Bear Call Spread and Covered Strangle options trading strategies. Find similarities and differences between Bear Call Spread and Covered Strangle strategies. Find the best options trading strategy for your trading needs.

Bear Call Spread Vs Covered Strangle

  Bear Call Spread Covered Strangle
Bear Call Spread Logo Covered Strangle Logo
About Strategy A Bear Call Spread strategy involves buying a Call Option while simultaneously selling a Call Option of lower strike price on same underlying asset and expiry date. You receive a premium for selling a Call Option and pay a premium for buying a Call Option. So your cost of investment is much lower. The strategy is less risky with the reward limited to the difference in premium received and paid. This strategy is used when the trader believes that the price of underlying asset will go down moderately. This strategy is also known as the bear call credit spread as a net credit is received upon entering the trade. The risk and reward both are limited in the strategy. How to use the bear call spread options strategy? The bear call spr... Read More The covered strangle option strategy is a bullish strategy. The strategy is created by owning or buying a stock and selling an OTM Call and OTM Put. It is called covered strangle because the upside risk of the strangle is covered or minimized. The strategy is perfect to use when you are prepared to sell the holding or bought shares at a higher price if the market moves up but would also is ready to buy more shares if the market moves downwards. The profit and in this strategy is unlimited while the risk is only on the downside.
Market View Bearish Bullish
Strategy Level Beginners Advance
Options Type Call Call + Put + Underlying
Number of Positions 2 3
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price of Short Call + Net Premium Received two break-even points

When and how to use Bear Call Spread and Covered Strangle?

  Bear Call Spread Covered Strangle
When to use?

The bear call spread options 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.

A covered strangle strategy can be used when you are bullish on the market but also want to cover any downside risk. You are prepared to sell the shares on profit but are also willing to buy more shares in case the prices fall.

Market View Bearish

When you are expecting the price of the underlying to moderately go down.

Bullish

The Strategy is perfect to apply when you're bullish on the market and expecting less volatility in the market.

Action
  • Buy OTM Call Option
  • Sell ITM Call Option

Let's assume you're Bearish on Nifty and are expecting mild drop in the price. You can deploy Bear Call strategy by selling a Call Option with lower strike and buying a Call Option with higher strike. You will receive a higher premium for selling a Call while pay lower premium for buying a Call. The net premium will be your profit. If the price of Nifty rises, your loss will be limited to difference between two strike prices minus net premium.

Buy 100 shares + Sell OTM Call +Sell OTM Put

The covered strangle options strategy can be executed by buying 100 shares of a stock while simultaneously selling an OTM Put and Call of the same the stock and similar expiration date.

Breakeven Point Strike Price of Short Call + Net Premium Received

The break even point is achieved when the price of the underlying is equal to strike price of the short Call plus net premium received.

two break-even points

There are 2 break-even points in the covered strangle strategy. One is the Upper break even point which is the sum of strike price of the Call option and premium received while the other is the lower break-even point which is the difference strike price of short Put and premium received.

Compare Risks and Rewards (Bear Call Spread Vs Covered Strangle)

  Bear Call Spread Covered Strangle
Risks Limited

The maximum loss occurs when the price of the underlying moves above the strike price of long Call.

Maximum Loss = Long Call Strike Price - Short Call Strike Price - Net Premium Received

Limited

The risk on this strategy is only on the downside when the price moves below the strike price of the Put option.

Rewards Limited

The maximum profit the net premium received. It occurs when the price of the underlying is greater than strike price of short Call Option.

Max Profit = Net Premium Received - Commissions Paid

Limited

The maximum profit on this strategy happens when the stock price is above the call price on expiry. The profit is the total of the gain from buying/selling stocks and net premium received on selling options.

Maximum Profit Scenario

Underlying goes down and both options not exercised

You will earn the maximum profit when the price of the stock is above the Call option strike price on expiry. You will be assigned on the Call option, would be able to sell holding shares on profit while retaining the premiums received while selling the options.

Maximum Loss Scenario

Underlying goes up and both options exercised

The maximum loss would be when the stock price falls drastically and turns worthless. The premiums received while selling the options will compensate for some of the loss.

Pros & Cons or Bear Call Spread and Covered Strangle

  Bear Call Spread Covered Strangle
Advantages

It allows you to profit in a flat market scenario when you're expecting the underlying to mildly drop, be range bound or marginally rise.

  • As the strategy involves buying shares when prices fall, there is long-term gain even if their short-term loss.
  • There is no upside risk due to the long position in stocks.
  • Allows you to earn income in a moderately bullish market.
Disadvantage

Limited profit potential.

  • The substantial risk when the price moves downwards.
  • Risk of assignments.
Simillar Strategies Bear Put Spread, Bull Call Spread Long Strangle, Short Strangle
Compare
Bear Call Spread Vs Long Call
Bear Call Spread Vs Short Call
Bear Call Spread Vs Long Put
Bear Call Spread Vs Short Put
Bear Call Spread Vs Bull Call Spread
Bear Call Spread Vs Bull Put Spread
Bear Call Spread Vs Synthetic Call
Bear Call Spread Vs Covered Call
Bear Call Spread Vs Long Combo
Bear Call Spread Vs Collar
Bear Call Spread Vs Bear Put Spread
Bear Call Spread Vs Protective Call
Bear Call Spread Vs Covered Put
Bear Call Spread Vs Long Straddle
Bear Call Spread Vs Short Straddle
Bear Call Spread Vs Long Strangle
Bear Call Spread Vs Short Strangle
Bear Call Spread Vs Long Call Butterfly
Bear Call Spread Vs Short Call Butterfly
Bear Call Spread Vs Long Condor
Bear Call Spread Vs Short Condor
Bear Call Spread Vs Box Spread
Bear Call Spread Vs Short Box
Covered Strangle Vs Long Call
Covered Strangle Vs Short Call
Covered Strangle Vs Long Put
Covered Strangle Vs Short Put
Covered Strangle Vs Bull Call Spread
Covered Strangle Vs Bull Put Spread
Covered Strangle Vs Synthetic Call
Covered Strangle Vs Covered Call
Covered Strangle Vs Long Combo
Covered Strangle Vs Collar
Covered Strangle Vs Bear Put Spread
Covered Strangle Vs Protective Call
Covered Strangle Vs Covered Put
Covered Strangle Vs Long Straddle
Covered Strangle Vs Short Straddle
Covered Strangle Vs Long Strangle
Covered Strangle Vs Short Strangle
Covered Strangle Vs Long Call Butterfly
Covered Strangle Vs Short Call Butterfly
Covered Strangle Vs Long Condor
Covered Strangle Vs Short Condor
Covered Strangle Vs Box Spread
Covered Strangle Vs Short Box