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Bear Put Spread Vs Short Call Butterfly Options Trading Strategy Comparison

Compare Bear Put Spread and Short Call Butterfly options trading strategies. Find similarities and differences between Bear Put Spread and Short Call Butterfly strategies. Find the best options trading strategy for your trading needs.

Bear Put Spread Vs Short Call Butterfly

  Bear Put Spread Short Call Butterfly
Bear Put Spread Logo Short Call Butterfly Logo
About Strategy The Bear Put strategy involves selling a Put Option while simultaneously buying a Put option. Contrary to Bear Call Spread, here you pay the higher premium and receive the lower premium. So there is a net debit in premium. Your risk is capped at the difference in premiums while your profit will be limited to the difference in strike prices of Put Option minus net premiums. 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 put debit spread as a net debit is taken upon entering the trade. This strategy has a limited risk as well as limited rewards. How to use the bear put spread options strategy? The bear put spread strategy looks like... Read More Short Call Butterfly (or Short Butterfly) is a neutral strategy similar to Long Butterfly but bullish on the volatility. This strategy is a limited risk and limited profit strategy. This strategy consists of two long calls at a middle strike (or ATM) and one short call each at a lower and upper strike. All the options must have the same expiration date. Also, the upper and lower strikes (or wings) must both be equidistant from the middle strike (or body). In simple terms, it involves Sell 1 ITM Call, Buy 2 ATM Calls and Sell 1 OTM Call. The strike prices of all Options should be at equal distance from the current price as shown in the example below. The usual Short Butterfly strategy looks like as below for NIFTY current index value as 1... Read More
Market View Bearish Neutral
Strategy Level Advance Advance
Options Type Put Call
Number of Positions 2 4
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price of Long Put - Net Premium 2 Break-even Points

When and how to use Bear Put Spread and Short Call Butterfly?

  Bear Put Spread Short Call Butterfly
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 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 drop.

Neutral

When you are unsure about the direction in the movement in the price of the underlying but are expecting high volatility in it in the near future.

Action
  • Buy ITM Put Option
  • Sell OTM Put Option

  • Buy 2 ATM Call
  • Sell 1 ITM Call
  • Sell 1 OTM Call

Breakeven Point Strike Price of Long Put - Net Premium

The breakeven point is achieved when the price of the underlying is equal to strike price of long Put minus net premium.

2 Break-even Points

There are 2 break even points in this strategy.

  1. Lower Break-even = Lower Strike Price + Net Premium
  2. Upper Break-even = Higher Strike Price - Net Premium

Compare Risks and Rewards (Bear Put Spread Vs Short Call Butterfly)

  Bear Put Spread Short Call Butterfly
Risks Limited

The maximum loss is limited to net premium paid. It occurs when the price of the underlying is less than strike price of long Put..

Max Loss = Net Premium Paid.

Limited

The maximum risk is limited.

Maximum Risk = Higher strike price- Lower Strike Price - Net Premium

Rewards Limited

The maximum profit is achieved when the strike price of short Put is greater than the price of the underlying..

Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.

Limited

The profit is limited to the net premium received. This happens when the price of the underlying is trading beyond the range of strike prices at expiration date.

Maximum Profit Scenario

Underlying goes down and both options exercised

All Options exercised or not exercised

Maximum Loss Scenario

Underlying goes up and both options not exercised

Only ITM Call exercised

Pros & Cons or Bear Put Spread and Short Call Butterfly

  Bear Put Spread Short Call Butterfly
Advantages

Risk is limited. It reduces the cost of investment.

This strategy requires no investment as net premium is positive and received. It allows you to benefit from high volatile market scenarios without the need to speculate on the direction of price movement.

Disadvantage

The profit is limited.

Profitability depends on significant movement in the price of the underlying.

Simillar Strategies Bear Call Spread, Bull Call Spread Long Straddle, Long Call Butterfly
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Bear Put Spread Vs Long Straddle
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Bear Put Spread Vs Long Call Butterfly
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Short Call Butterfly Vs Long Call
Short Call Butterfly Vs Short Call
Short Call Butterfly Vs Long Put
Short Call Butterfly Vs Short Put
Short Call Butterfly Vs Bull Call Spread
Short Call Butterfly Vs Bull Put Spread
Short Call Butterfly Vs Synthetic Call
Short Call Butterfly Vs Covered Call
Short Call Butterfly Vs Long Combo
Short Call Butterfly Vs Collar
Short Call Butterfly Vs Bear Call Spread
Short Call Butterfly Vs Protective Call
Short Call Butterfly Vs Covered Put
Short Call Butterfly Vs Long Straddle
Short Call Butterfly Vs Short Straddle
Short Call Butterfly Vs Long Strangle
Short Call Butterfly Vs Short Strangle
Short Call Butterfly Vs Long Call Butterfly
Short Call Butterfly Vs Long Condor
Short Call Butterfly Vs Short Condor
Short Call Butterfly Vs Box Spread
Short Call Butterfly Vs Short Box
Short Call Butterfly Vs Covered Strangle







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