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Compare Long Put and Bear Call Spread options trading strategies. Find similarities and differences between Long Put and Bear Call Spread strategies. Find the best options trading strategy for your trading needs.
| Long Put | Bear Call Spread | |
|---|---|---|
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| About Strategy | A Long Put strategy is a basic strategy with the Bearish market view. Long Put is the opposite of Long Call. Here you are trying to take a position to benefit from the fall in the price of the underlying asset. The risk is limited to premium while rewards are unlimited. Long put strategy is similar to short selling a stock. This strategy has many advantages over short selling. This includes the maximum risk is the premium paid and lower investment. The challenge with this strategy is that options have an expiry, unlike stocks which you can hold as long as you want. Let's assume you are bearish on NIFTY and expects its price to fall. You can deploy a Long Put strategy by buying an ATM PUT Option of NIFTY. If the price of NIFTY share... 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 | Bearish | Bearish |
| Strategy Level | Beginners | Beginners |
| Options Type | Put | Call |
| Number of Positions | 1 | 2 |
| Risk Profile | Limited | Limited |
| Reward Profile | Unlimited | Limited |
| Breakeven Point | Strike Price of Long Put - Premium Paid | Strike Price of Short Call + Net Premium Received |
| Long Put | Bear Call Spread | |
|---|---|---|
| When to use? | A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future. |
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 | Bearish When you are expecting a drop in the price of the underlying and rise in the volatility. |
Bearish When you are expecting the price of the underlying to moderately go down. |
| Action |
Let's assume you're Bearish on Nifty currently trading at 10,400. You expect it to fall to 10,000 level. You buy a Put option with a strike price 10,000. If the Nifty goes below 10,000, you will make a profit on exercising the option. In case the Nifty rises contrary to expectation, you will incur a maximum loss of the premium. |
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 Long Put - Premium Paid The breakeven is achieved when the strike price of the Put Option is equal to the 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. |
| Long Put | Bear Call Spread | |
|---|---|---|
| Risks | Limited The risk for this strategy is limited to the premium paid for the Put Option. Maximum loss will happen when price of underlying is greater than strike price of the Put option. |
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 This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops. |
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 goes down and Option exercised
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Underlying goes down and both options not exercised |
| Maximum Loss Scenario | Underlying goes up and Option not exercised
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Underlying goes up and both options exercised |
| Long Put | Bear Call Spread | |
|---|---|---|
| Advantages | Unlimited profit potential with risk only limited to loss of premium. |
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 | You may incur 100% loss in premium if the underlying price rises. |
Limited profit potential. |
| Simillar Strategies | Protective Call, Short Put, Long Straddle | Bear Put Spread, Bull Call Spread |
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