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Short Call (Naked Call) Vs Bear Put Spread Options Trading Strategy Comparison

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

Short Call (Naked Call) Vs Bear Put Spread

  Short Call (Naked Call) Bear Put Spread
Short Call (Naked Call) Logo Bear Put Spread Logo
About Strategy Short Call (or Naked Call) strategy involves the selling of the Call Options (or writing call option). In this strategy, a trader is Very Bearish in his market view and expects the price of the underlying asset to go down in near future. This strategy is highly risky with potential for unlimited losses and is generally preferred by experienced traders. The strategy involves taking a single position of selling a Call Option of any type i.e. ITM or OTM. These naked calls are also known as Out-Of-The-Money Naked Call and In-The-Money Naked Call based on the type you choose. This strategy has limited rewards (max profit is premium received) and unlimited loss potential. When the trader goes short on call, the trader sells a call option and e... Read More The Bear Put strategy involves selling a Put Option while simultaneously buying a Put option. Contrary to Bear Call Spread, here you pay the higher premium and receive the lower premium. So there is a net debit in premium. Your risk is capped at the difference in premiums while your profit will be limited to the difference in strike prices of Put Option minus net premiums. 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 put debit spread as a net debit is taken upon entering the trade. This strategy has a limited risk as well as limited rewards. How to use the bear put spread options strategy? The bear put spread strategy looks like... Read More
Market View Bearish Bearish
Strategy Level Advance Advance
Options Type Call Put
Number of Positions 1 2
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price of Short Call + Premium Received Strike Price of Long Put - Net Premium

When and how to use Short Call (Naked Call) and Bear Put Spread?

  Short Call (Naked Call) Bear Put Spread
When to use?

It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying.

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 the price of the underlying or its volatility to only moderately increase.

Bearish

When you are expecting the price of the underlying to moderately drop.

Action
  • Sell Call Option

  • Buy ITM Put Option
  • Sell OTM Put Option

Breakeven Point Strike Price of Short Call + Premium Received

Break even is achieved when the price of the underlying is equal to total of strike price and premium received.

Strike Price of Long Put - Net Premium

The breakeven point is achieved when the price of the underlying is equal to strike price of long Put minus net premium.

Compare Risks and Rewards (Short Call (Naked Call) Vs Bear Put Spread)

  Short Call (Naked Call) Bear Put Spread
Risks Unlimited

There risk is unlimited and depend on how high the price of the underlying moves.

Limited

The maximum loss is limited to net premium paid. It occurs when the price of the underlying is less than strike price of long Put..

Max Loss = Net Premium Paid.

Rewards Limited

The profit is limited to the premium received.

Limited

The maximum profit is achieved when the strike price of short Put is greater than the price of the underlying..

Max Profit = Strike Price of Long Put - Strike Price of Short Put - Net Premium Paid.

Maximum Profit Scenario

When underline asset goes down and option not exercised.

  • Max Profit = Premium Received
  • Max Profit Achieved When Price of Underlying <= Strike Price of Short Call

Underlying goes down and both options exercised

Maximum Loss Scenario

When underline asset goes up and option exercised.

  • Maximum Loss = Unlimited
  • Loss Occurs When Price of Underlying > Strike Price of Short Call + Premium Received
  • Loss = Price of Underlying - Strike Price of Short Call - Premium Received

Underlying goes up and both options not exercised

Pros & Cons or Short Call (Naked Call) and Bear Put Spread

  Short Call (Naked Call) Bear Put Spread
Advantages

This strategy allows you to profit from falling prices in the underlying asset.

Risk is limited. It reduces the cost of investment.

Disadvantage

There's unlimited risk on the upside as you are selling Option without holding the underlying.

Rewards are limited to premium received only.

The profit is limited.

Simillar Strategies Covered Put, Covered Calls, Bear Call Spread Bear Call Spread, Bull Call Spread