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

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

Bear Call Spread Vs Long Strangle (Buy Strangle)

  Bear Call Spread Long Strangle (Buy Strangle)
Bear Call Spread Logo Long Strangle (Buy 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 Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... 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 two break-even points

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

  Bear Call Spread Long Strangle (Buy 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 Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc.

Market View Bearish

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

Neutral

When you are unsure of the direction of the underlying but expecting high volatility in it.

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 OTM Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

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

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = Strike Price of Call + Net Premium

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

  Bear Call Spread Long Strangle (Buy 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

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

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

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Maximum Profit Scenario

Underlying goes down and both options not exercised

One Option exercised

Maximum Loss Scenario

Underlying goes up and both options exercised

Both Option not exercised

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

  Bear Call Spread Long Strangle (Buy 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.

Disadvantage

Limited profit potential.

The strategy requires significant price movements in the underlying to gain profits.

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