Compare Strategies:

Bull Call Spread Vs Long Strangle (Buy Strangle) Options Trading Strategy Comparison

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

Bull Call Spread Vs Long Strangle (Buy Strangle)

  Bull Call Spread Long Strangle (Buy Strangle)
Bull Call Spread Logo Long Strangle (Buy 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 Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date. This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term. It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration. The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price): Options Strangle Orders OrdersNIFTY Strike Price Buy 1 Slightly OTM PutN... Read More
Market View Bullish Neutral
Strategy Level Beginners Beginners
Options Type Call Call + Put
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Limited Unlimited
Breakeven Point Strike price of purchased call + net premium paid two break-even points

When and how to use Bull Call Spread and Long Strangle (Buy Strangle)?

  Bull Call Spread Long Strangle (Buy 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 Long Strangle 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 Bullish

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

Neutral

When you are unsure of the direction of the underlying but expecting high volatility in it.

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 OTM Call Option
  • Buy OTM Put Option

Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves.

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

A Options Strangle strategy has two break-even points.

Lower Breakeven Point = Strike Price of Put - Net Premium

Upper Breakeven Point = Strike Price of Call + Net Premium

Compare Risks and Rewards (Bull Call Spread Vs Long Strangle (Buy Strangle))

  Bull Call Spread Long Strangle (Buy 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

Max Loss = Net Premium Paid

The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options.

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

Unlimited

Maximum profit is achieved when the underlying moves significantly up and down at expiration.

Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid

Or

Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid

Maximum Profit Scenario

Both options exercised

One Option exercised

Maximum Loss Scenario

Both options unexercised

Both Option not exercised

Pros & Cons or Bull Call Spread and Long Strangle (Buy Strangle)

  Bull Call Spread Long Strangle (Buy Strangle)
Advantages

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

Disadvantage

Profit potential is limited.

The strategy requires significant price movements in the underlying to gain profits.

Simillar Strategies Collar, Bull Put Spread Long Straddle, Short Strangle







Search Chittorgarh.com:

Download Our Mobile App

Android App iOS App