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Collar Vs Bull Call Spread Options Trading Strategy Comparison

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

Collar Vs Bull Call Spread

  Collar Bull Call Spread
Collar Logo Bull Call Spread Logo
About Strategy A Collar is similar to Covered Call but involves another position of buying a Put Option to cover the fall in the price of the underlying. It involves buying an ATM Put Option & selling an OTM Call Option of the underlying asset. It is a low risk strategy since the Put Option minimizes the downside risk. However, the rewards are also limited and is perfect for conservatively Bullish market view. Suppose you are holding shares of SBI currently trading at Rs 250. You can deploy a collar strategy by selling a Call Option of strike price Rs 300 while at the same time purchasing a Rs 200 strike price Put option. If the price rises to Rs 300, your benefit from increase in value of your holdings and you will lose net premiums. If the price falls... Read More 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.
Market View Bullish Bullish
Strategy Level Advance Beginners
Options Type Call + Put + Underlying Call
Number of Positions 3 2
Risk Profile Limited Limited
Reward Profile Limited Limited
Breakeven Point Price of Features - Call Premium + Put Premium Strike price of purchased call + net premium paid

When and how to use Collar and Bull Call Spread?

  Collar Bull Call Spread
When to use?

The Collar strategy is perfect if you're Bullish for the underlying you're holding but are concerned with risk and want to protect your losses.

A Bull Call Spread strategy works well when you're Bullish of the market but expect the underlying to gain mildly in near future.

Market View Bullish

When you are of the view that the price of the underlying will move up but also want to protect the downside.

Bullish

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

Action
  • Buy Underlying
  • Buy 1 ATM Put Option
  • Sell 1 OTM Call Option

  • 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.

Breakeven Point Price of Features - Call Premium + Put Premium
Strike price of purchased call + net premium paid

Compare Risks and Rewards (Collar Vs Bull Call Spread)

  Collar Bull Call Spread
Risks Limited

You will incur maximum losses when price of the underlying is less than the strike price of the Put Option.

Max Loss = Purchase Price of Underlying - Strike Price of Long Put - Net Premium Received

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.

Rewards Limited

You will incur maximum profit when price of underlying is greater than the strike price of call option.

Max Profit = Strike Price of Short Call - Purchase Price of Underlying + Net Premium Received

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

Maximum Profit Scenario

Underlying goes up and Call option exercised

Both options exercised

Maximum Loss Scenario

Underlying goes down and Put option exercised

Both options unexercised

Pros & Cons or Collar and Bull Call Spread

  Collar Bull Call Spread
Advantages

It protects the losses on underlying asset.

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

Disadvantage

The profit is limited

Profit potential is limited.

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







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