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Compare Bull Call Spread and Bear Call Spread options trading strategies. Find similarities and differences between Bull Call Spread and Bear Call Spread strategies. Find the best options trading strategy for your trading needs.
| Bull Call Spread | Bear Call Spread | |
|---|---|---|
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| About Strategy | A Bull Call Spread (or Bull Call Debit Spread) strategy is meant for investors who are moderately bullish of the market and are expecting mild rise in the price of underlying. The strategy involves taking two positions of buying a Call Option and selling of a Call Option. The risk and reward in this strategy is limited. A Bull Call Spread strategy involves Buy ITM Call Option and Sell OTM Call Option.For example, if you are of the view that NIFTY will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell Nifty Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised. | 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 |
| Market View | Bullish | Bearish |
| Strategy Level | Beginners | Beginners |
| Options Type | Call | Call |
| Number of Positions | 2 | 2 |
| Risk Profile | Limited | Limited |
| Reward Profile | Limited | Limited |
| Breakeven Point | Strike price of purchased call + net premium paid | Strike Price of Short Call + Net Premium Received |
| Bull Call Spread | Bear Call Spread | |
|---|---|---|
| When to use? | A Bull Call Spread strategy works well when you're Bullish of the market but expect the underlying to gain mildly in near future. |
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. |
| Market View | Bullish When you are expecting a moderate rise in the price of the underlying. |
Bearish When you are expecting the price of the underlying to moderately go down. |
| Action |
A Bull Call Spread strategy involves Buy ITM Call Option + Sell OTM Call Option. For example, if you are of the view that Nifty will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell NIFTY 50 Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised. |
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. |
| Breakeven Point | Strike price of purchased call + net premium paid |
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. |
| Bull Call Spread | Bear Call Spread | |
|---|---|---|
| Risks | Limited The trade will result in a loss if the price of the underlying decreases at expiration. The maximum loss is limited to net premium paid. Max Loss = Net Premium Paid Max Loss happens when the strike price of Call is less than or equal to price of the underlying. |
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 |
| Rewards | Limited Limited To The Difference Between Two Strike Prices Minus Net Premium Maximum profit happens when the price of the underlying rises above strike price of two Calls. The profit is limited to the difference between two strike prices minus net premium paid. Max Profit = (Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid |
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 |
| Maximum Profit Scenario | Both options exercised |
Underlying goes down and both options not exercised |
| Maximum Loss Scenario | Both options unexercised |
Underlying goes up and both options exercised |
| Bull Call Spread | Bear Call Spread | |
|---|---|---|
| Advantages | Instead of straightaway buying a Call Option, this strategy allows you to reduce cost and risk of your investments. |
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 | Profit potential is limited. |
Limited profit potential. |
| Simillar Strategies | Collar, Bull Put Spread | Bear Put Spread, Bull Call Spread |
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I understand the Advantage of time decay.
On dis-advantage, how time decay may go against in loss situations ?