Long Call Vs Bear Call Spread Options Trading Strategy Comparison

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

Long Call Vs Bear Call Spread

	Long Call	Bear Call Spread


About Strategy	A Long Call Option trading strategy is one of the basic strategies. In this strategy, a trader is Bullish in his market view and expects the market to rise in near future. The strategy involves taking a single position of buying a Call Option (either ITM, ATM or OTM). This strategy has limited risk (max loss is premium paid) and unlimited profit potential. When the trader goes long on call, the trader buys a Call Option and later sells it to earn profits if the price of the underlying asset goes up. When the trader buys a call, he pays the option premium in exchange for the right (but not the obligation) to buy share or index at a fixed price by a certain expiry date. This premium is the only amount at-the-risk for trader in case the mark... 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	Beginners	Beginners
Options Type	Call	Call
Number of Positions	1	2
Risk Profile	Limited	Limited
Reward Profile	Unlimited	Limited
Breakeven Point	Strike Price + Premium	Strike Price of Short Call + Net Premium Received

When and how to use Long Call and Bear Call Spread?

	Long Call	Bear Call Spread
When to use?	A long call Option strategy works well when you expect the underlying instrument to move positively in the recent future. If you expect XYZ company to do well in near future then you can buy Call Options of the company. You will earn the profit if the price of the company shares closes above the Strike Price on the expiry date. However, if underlying shares don't do well and move downwards on expiry date you will incur losses (i.e. lose premium paid).	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're expecting a rise in the price of the underlying and increase in volatility.	Bearish When you are expecting the price of the underlying to moderately go down.
Action	Buy Call Option A long call strategy involves buying a call option only. So if you expect Reliance to do well in near future then you can buy Call Options of Reliance. You will earn a profit if the price of Reliance shares closes above the Strike price on the expiry date. However, if Reliance shares don't move up within the expiry date you will incur losses.	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 + Premium The break-even point for Long Call strategy is the sum of the strike price and premium paid. Traders earn profits if the price of the underlying asset moves above the break-even point. Traders loose premium if the price of the underlying asset falls below the break-even point.	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 (Long Call Vs Bear Call Spread)

	Long Call	Bear Call Spread
Risks	Limited The risk is limited to the premium paid for the call option irrespective of the price of the underlying on the expiration date. Max Loss = Premium Paid	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	Unlimited There is no limit to maximum profit attainable in the long call option strategy. The trade gets profitable when price of the underlying is greater than strike price plus premium. Profit = Price of Underlying - (Strike Price + Premium Paid)	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	Underlying closes above the strike price on expiry.	Underlying goes down and both options not exercised
Maximum Loss Scenario	Underlying closes below the strike price on expiry.	Underlying goes up and both options exercised

Pros & Cons or Long Call and Bear Call Spread

	Long Call	Bear Call Spread
Advantages	Buying a Call Option instead of the underlying allows you to gain more profits by investing less and limiting your losses to minimum.	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	Call options have a limited lifespan. So, in case the price of your underlying stock is not higher than the strike price before the expiry date, the call option will expire worthlessly and you will lose the premium paid.	Limited profit potential.
Simillar Strategies	Protective Put, Covered Put/Married Put, Bull Call Spread	Bear Put Spread, Bull Call Spread

1 Comments

1. Justin Gilead

| Link|August 16, 2022 8:47:47 PMReply

You partially get it wrong! The max loss will be the equivalent of the call premium paid for a single call position, indeed ; for a synthetic call options, it will be likened to the call options premium that you actually haven't paid as the call position has just been replicated along with the help of a long put and a long underlying though. For instance, if you purchase an ITM put, in addition to the long underlying, then the overall cost will be quite high, but the max risk entailed in the position will be the equivalent of the cheap OTM call options (only time value) that stands on the other side and on the same strike. In short, you may pay more to risk less with a synthetic options ; it definitely does the trick for hedging purposes then.

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