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Bear Call Spread Vs Long Straddle (Buy Straddle) Options Trading Strategy Comparison

Compare Bear Call Spread and Long Straddle (Buy Straddle) options trading strategies. Find similarities and differences between Bear Call Spread and Long Straddle (Buy Straddle) strategies. Find the best options trading strategy for your trading needs.

Bear Call Spread Vs Long Straddle (Buy Straddle)

  Bear Call Spread Long Straddle (Buy Straddle)
Bear Call Spread Logo Long Straddle (Buy Straddle) 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 Long Straddle (or Buy Straddle) is a neutral strategy. This strategy involves simultaneously buying a call and a put option of the same underlying asset, same strike price and same expire date. A Long Straddle strategy is used in case of highly volatile market scenarios wherein you expect a big movement in the price of the underlying but are not sure of the direction. Such scenarios arise when company declare results, budget, war-like situation etc. This is an unlimited profit and limited risk strategy. The profit earns in this strategy is unlimited. Higher volatility results in higher profits. The maximum loss is limited to the net premium paid. The max loss occurs when underlying asset price on expire remains at the strike price. ... Read More
Market View Bearish Neutral
Strategy Level Beginners Beginners
Options Type Call Call + Put
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Limited Unlimited
Breakeven Point Strike Price of Short Call + Net Premium Received 2 break-even points

When and how to use Bear Call Spread and Long Straddle (Buy Straddle)?

  Bear Call Spread Long Straddle (Buy Straddle)
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.

The strategy is perfect to use when there is market volatility expected due to results, elections, budget, policy change, war etc.

Market View Bearish

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

Neutral

When you are not sure on the direction the underlying would move but are expecting the rise in its volatility.

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 Call Option
  • Buy Put Option

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.

2 break-even points

A straddle has two break-even points.

Lower Breakeven = Strike Price of Put - Net Premium

Upper breakeven = Strike Price of Call + Net Premium

Compare Risks and Rewards (Bear Call Spread Vs Long Straddle (Buy Straddle))

  Bear Call Spread Long Straddle (Buy Straddle)
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 maximum loss for long straddle strategy is limited to the net premium paid. It happens the price of underlying is equal to strike price of options.

Maximum Loss = Net Premium Paid

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

Unlimited

There is unlimited profit opportunity in this strategy irrespective of the direction of the underlying. Profit occurs when the price of the underlying is greater than strike price of long Put or lesser than strike price of long Call.

Maximum Profit Scenario

Underlying goes down and both options not exercised

Max profit is achieved when at one option is exercised.

Maximum Loss Scenario

Underlying goes up and both options exercised

When both options are not exercised. This happens when underlying asset price on expire remains at the strike price.

Pros & Cons or Bear Call Spread and Long Straddle (Buy Straddle)

  Bear Call Spread Long Straddle (Buy Straddle)
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.

Earns you unlimited profit in a volatile market while minimizing the loss.

Disadvantage

Limited profit potential.

The price change has to be bigger to make good profits.

Simillar Strategies Bear Put Spread, Bull Call Spread Long Strangle, Short Straddle