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Bull Call Spread Vs Short Call Butterfly Options Trading Strategy Comparison

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

Bull Call Spread Vs Short Call Butterfly

  Bull Call Spread Short Call Butterfly
Bull Call Spread Logo Short Call Butterfly 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. 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 Bullish Neutral
Strategy Level Beginners Advance
Options Type Call Call
Number of Positions 2 4
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Strike price of purchased call + net premium paid 2 Break-even Points

When and how to use Bull Call Spread and Short Call Butterfly?

  Bull Call Spread Short Call Butterfly
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.

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 Bullish

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

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

Breakeven Point Strike price of purchased call + net premium paid
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 (Bull Call Spread Vs Short Call Butterfly)

  Bull Call Spread Short Call Butterfly
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 risk is limited.

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

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 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

Both options exercised

All Options exercised or not exercised

Maximum Loss Scenario

Both options unexercised

Only ITM Call exercised

Pros & Cons or Bull Call Spread and Short Call Butterfly

  Bull Call Spread Short Call Butterfly
Advantages

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

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

Profit potential is limited.

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

Simillar Strategies Collar, Bull Put Spread Long Straddle, Long Call Butterfly
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