Compare Strategies:

Short Call (Naked Call) Vs Bull Call Spread Options Trading Strategy Comparison

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

Short Call (Naked Call) Vs Bull Call Spread

  Short Call (Naked Call) Bull Call Spread
Short Call (Naked Call) Logo Bull Call 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 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 Bearish Bullish
Strategy Level Advance Beginners
Options Type Call Call
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 purchased call + net premium paid

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

  Short Call (Naked Call) Bull Call 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.

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 Bearish

When you are expecting the price of the underlying or its volatility to only moderately increase.

Bullish

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

Action
  • Sell 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 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 purchased call + net premium paid

Compare Risks and Rewards (Short Call (Naked Call) Vs Bull Call Spread)

  Short Call (Naked Call) Bull Call Spread
Risks Unlimited

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

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

The profit is limited to the 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

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

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

Both options unexercised

Pros & Cons or Short Call (Naked Call) and Bull Call Spread

  Short Call (Naked Call) Bull Call Spread
Advantages

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

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

Disadvantage

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

Rewards are limited to premium received only.

Profit potential is limited.

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







Search Chittorgarh.com:

Download Our Mobile App

Android App iOS App