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Bull Call Spread Vs Covered Strangle Options Trading Strategy Comparison

Compare Bull Call Spread and Covered Strangle options trading strategies. Find similarities and differences between Bull Call Spread and Covered Strangle strategies. Find the best options trading strategy for your trading needs.

Bull Call Spread Vs Covered Strangle

  Bull Call Spread Covered Strangle
Bull Call Spread Logo Covered Strangle Logo
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. The covered strangle option strategy is a bullish strategy. The strategy is created by owning or buying a stock and selling an OTM Call and OTM Put. It is called covered strangle because the upside risk of the strangle is covered or minimized. The strategy is perfect to use when you are prepared to sell the holding or bought shares at a higher price if the market moves up but would also is ready to buy more shares if the market moves downwards. The profit and in this strategy is unlimited while the risk is only on the downside.
Market View Bullish Bullish
Strategy Level Beginners Advance
Options Type Call Call + Put + Underlying
Number of Positions 2 3
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Strike price of purchased call + net premium paid two break-even points

When and how to use Bull Call Spread and Covered Strangle?

  Bull Call Spread Covered Strangle
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.

A covered strangle strategy can be used when you are bullish on the market but also want to cover any downside risk. You are prepared to sell the shares on profit but are also willing to buy more shares in case the prices fall.

Market View Bullish

When you are expecting a moderate rise in the price of the underlying.

Bullish

The Strategy is perfect to apply when you're bullish on the market and expecting less volatility in the market.

Action
  • Buy ITM Call Option
  • Sell OTM Call Option

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.

Buy 100 shares + Sell OTM Call +Sell OTM Put

The covered strangle options strategy can be executed by buying 100 shares of a stock while simultaneously selling an OTM Put and Call of the same the stock and similar expiration date.

Breakeven Point Strike price of purchased call + net premium paid
two break-even points

There are 2 break-even points in the covered strangle strategy. One is the Upper break even point which is the sum of strike price of the Call option and premium received while the other is the lower break-even point which is the difference strike price of short Put and premium received.

Compare Risks and Rewards (Bull Call Spread Vs Covered Strangle)

  Bull Call Spread Covered Strangle
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 risk on this strategy is only on the downside when the price moves below the strike price of the Put option.

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 on this strategy happens when the stock price is above the call price on expiry. The profit is the total of the gain from buying/selling stocks and net premium received on selling options.

Maximum Profit Scenario

Both options exercised

You will earn the maximum profit when the price of the stock is above the Call option strike price on expiry. You will be assigned on the Call option, would be able to sell holding shares on profit while retaining the premiums received while selling the options.

Maximum Loss Scenario

Both options unexercised

The maximum loss would be when the stock price falls drastically and turns worthless. The premiums received while selling the options will compensate for some of the loss.

Pros & Cons or Bull Call Spread and Covered Strangle

  Bull Call Spread Covered Strangle
Advantages

Instead of straightaway buying a Call Option, this strategy allows you to reduce cost and risk of your investments.

  • As the strategy involves buying shares when prices fall, there is long-term gain even if their short-term loss.
  • There is no upside risk due to the long position in stocks.
  • Allows you to earn income in a moderately bullish market.
Disadvantage

Profit potential is limited.

  • The substantial risk when the price moves downwards.
  • Risk of assignments.
Simillar Strategies Collar, Bull Put Spread Long Strangle, Short Strangle
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