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Bear Call Spread Vs Short Strangle (Sell Strangle) Options Trading Strategy Comparison

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

Bear Call Spread Vs Short Strangle (Sell Strangle)

  Bear Call Spread Short Strangle (Sell Strangle)
Bear Call Spread Logo Short Strangle (Sell 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 Short Strangle (or Sell Strangle) is a neutral strategy wherein a Slightly OTM Call and a Slightly OTM Put Options are sold simultaneously of same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience a very little volatility in the near term. It is a limited profit and unlimited risk strategy. The maximum profit earn is the net premium received. The maximum loss is achieved when the underlying moves either significantly upwards or downwards at expiration. A net credit is taken to enter into this strategy. For this reason, the Short Strangles are Credit Spreads. The usual Short Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY S... 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 two break-even points

When and how to use Bear Call Spread and Short Strangle (Sell Strangle)?

  Bear Call Spread Short Strangle (Sell 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.

The Short Strangle is perfect in a neutral market scenario when the underlying is expected to be less volatile.

Market View Bearish

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

Neutral

When you are expecting little volatility and movement in the price of the underlying.

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 OTM Call
  • Sell OTM Put

Sell 1 out-of-the-money put and sell 1 out-of-the-money call which belongs to same underlying asset and has the same expiry 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

A strangle has two break-even points.

Lower Break-even = Strike Price of Put - Net Premium

Upper Break-even = Strike Price of Call+ Net Premium"

Compare Risks and Rewards (Bear Call Spread Vs Short Strangle (Sell Strangle))

  Bear Call Spread Short Strangle (Sell 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

Unlimited

The maximum loss is unlimited in this strategy. You will incur losses when the price of the underlying moves significantly either upwards or downwards at expiration.

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

For maximum profit, the price of the underlying on expiration date must trade between the strike prices of the options. The maximum profit is limited to the net premium received while selling the Options.

Maximum Profit = Net Premium Received

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 Strangle (Sell Strangle)

  Bear Call Spread Short Strangle (Sell 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.

The strategy offers higher chance of profitability in comparison to Short Straddle due to selling of OTM Options.

Disadvantage

Limited profit potential.

Limited reward with high risk exposure.

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







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