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Bull Put Spread Vs Bear Call Spread Options Trading Strategy Comparison

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

Bull Put Spread Vs Bear Call Spread

  Bull Put Spread Bear Call Spread
Bull Put Spread Logo Bear Call Spread Logo
About Strategy A Bull Put Spread (or Bull Put Credit Spread) strategy is a Bullish strategy to be used when you're expecting the price of the underlying instrument to mildly rise or be less volatile. The strategy involves buying a Put Option and selling a Put Option at different strike prices. The risk and reward for this strategy is limited. A Bull Put Strategy involves Buy OTM Put Option and Sell ITM Put Option. For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at Rs 600 then you will buy an OTM Put Option at Rs 700 and a sell an ITM Put Option at Rs 550. You will make a profit when, at expiry, Reliance closes at Rs 700 level and incur losse... Read More 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 Advance Beginners
Options Type Put Call
Number of Positions 2 2
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Strike price of short put - net premium paid Strike Price of Short Call + Net Premium Received

When and how to use Bull Put Spread and Bear Call Spread?

  Bull Put Spread Bear Call Spread
When to use?

This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.

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 or less volatility.
Bearish

When you are expecting the price of the underlying to moderately go down.

Action
  • Buy OTM Put Option
  • Sell ITM Put Option

A Bull Put Strategy involves Buy OTM Put Option + Sell ITM Put Option.

For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at 600 then you will buy a OTM PUT OPTION at 700 and a sell a ITM PUT OPTION at 550. You will make a profit when at expiry Reliance closes at 700 level and incur losses if the prices fall down below the current price.

  • Buy OTM Call Option
  • Sell ITM Call Option

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 short put - 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.

Compare Risks and Rewards (Bull Put Spread Vs Bear Call Spread)

  Bull Put Spread Bear Call Spread
Risks Limited

Maximum loss occurs when the stock price moves below the lower strike price on expiration date.

Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received

Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

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

Maximum profit happens when the price of the underlying moves above the strike price of Short Put on expiration date.

Max Profit = Net Premium Received

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 unexercised

Underlying goes down and both options not exercised

Maximum Loss Scenario

Both options exercised

Underlying goes up and both options exercised

Pros & Cons or Bull Put Spread and Bear Call Spread

  Bull Put Spread Bear Call Spread
Advantages

Allows you to benefit from time decay in profit situations. Helps you profit from 3 scenarios: rise, sideway movements and marginal fall of the underlying.

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

Limited profit. Time decay may go against you in loss situations.

Limited profit potential.

Simillar Strategies Bull Call Spread, Bear Put Spread, Collar Bear Put Spread, Bull Call Spread







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