Long Put Vs Bull Call Spread Options Trading Strategy Comparison

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future.

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

When you are expecting a drop in the price of the underlying and rise in the volatility.

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

• Buy Put Option

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.

• 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.

The breakeven is achieved when the strike price of the Put Option is equal to the premium paid.

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.

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.

This strategy has the potential to earn unlimited profit. The profit will depend on how low the price of the underlying drops.

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

Underlying goes down and Option exercised

• Maximum Profit = Unlimited
• Maximum Profit Achieved When Price of Underlying = 0
• Profit = Strike Price of Long Put - Premium Paid

Both options exercised

Underlying goes up and Option not exercised

• Max Loss = Premium Paid + Commissions Paid
• Max Loss Occurs When Price of Underlying >= Strike Price of Long Put

Both options unexercised

Unlimited profit potential with risk only limited to loss of premium.

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

You may incur 100% loss in premium if the underlying price rises.

Profit potential is limited.