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Bear Call Spread Vs Short Straddle (Sell Straddle or Naked Straddle) Options Trading Strategy Comparison

Compare Bear Call Spread and Short Straddle (Sell Straddle or Naked Straddle) options trading strategies. Find similarities and differences between Bear Call Spread and Short Straddle (Sell Straddle or Naked Straddle) strategies. Find the best options trading strategy for your trading needs.

Bear Call Spread Vs Short Straddle (Sell Straddle or Naked Straddle)

  Bear Call Spread Short Straddle (Sell Straddle or Naked Straddle)
Bear Call Spread Logo Short Straddle (Sell Straddle or Naked 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 Short Straddle (or Sell Straddle or naked Straddle) is a neutral options strategy. This strategy involves simultaneously selling a call and a put option of the same underlying asset, same strike price and same expire date. A Short Straddle strategy is used in case of little volatility market scenarios wherein you expect none or very little movement in the price of the underlying. Such scenarios arise when there is no major news expected until expire. This is a limited profit and unlimited loss strategy. The maximum profit earned when, on expire date, the underlying asset is trading at the strike price at which the options are sold. The maximum loss is unlimited and occurs when underlying asset price moves sharply in upward or down... Read More
Market View Bearish Neutral
Strategy Level Beginners Advance
Options Type Call Call + Put
Number of Positions 2 2
Risk Profile Limited Unlimited
Reward Profile Limited Limited
Breakeven Point Strike Price of Short Call + Net Premium Received 2 Breakeven Points

When and how to use Bear Call Spread and Short Straddle (Sell Straddle or Naked Straddle)?

  Bear Call Spread Short Straddle (Sell Straddle or Naked 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.

This strategy is to be used when you expect a flat market in the coming days with very less movement in the prices of underlying asset.

Market View Bearish

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

Neutral

When trader don't expect much movement in its price in near future.

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.

  • Sell Call Option
  • Sell 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 Breakeven Points

There are 2 break even points in this strategy. The upper break even is hit when the underlying price is equal to the total of strike price of short call and net premium paid. The lower break even is hit when the underlying price is equal to the difference between strike price of short Put and net premium paid.

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 Short Straddle (Sell Straddle or Naked Straddle))

  Bear Call Spread Short Straddle (Sell Straddle or Naked 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

Unlimited

There is a possibility of unlimited loss in the short straddle strategy. The loss occurs when the price of the underlying significantly moves upwards and downwards.

Loss = Price of Underlying - Strike Price of Short Call - Net Premium Received

Or

Loss= Strike Price of Short Put - Price of Underlying - Net Premium Received

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

Maximum profit is limited to the net premium received. The profit is achieved when the price of the underlying is equal to either strike price of short Call or Put.

Maximum Profit Scenario

Underlying goes down and both options not exercised

Both Option not exercised

Maximum Loss Scenario

Underlying goes up and both options exercised

One Option exercised

Pros & Cons or Bear Call Spread and Short Straddle (Sell Straddle or Naked Straddle)

  Bear Call Spread Short Straddle (Sell Straddle or Naked 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.

It allows you to benefit from double time decay and earn profit in a less volatile scenario.

Disadvantage

Limited profit potential.

Unlimited losses if the price of the underlying move significantly in either direction.

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







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