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

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

Short Call (Naked Call) Vs Bull Put Spread

  Short Call (Naked Call) Bull Put Spread
Short Call (Naked Call) Logo Bull 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 A Bull Put Spread (or Bull Put Credit Spread) strategy is a Bullish strategy to be used when you're expecting the price of the underlying instrument to mildly rise or be less volatile. The strategy involves buying a Put Option and selling a Put Option at different strike prices. The risk and reward for this strategy is limited. A Bull Put Strategy involves Buy OTM Put Option and Sell ITM Put Option. For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at Rs 600 then you will buy an OTM Put Option at Rs 700 and a sell an ITM Put Option at Rs 550. You will make a profit when, at expiry, Reliance closes at Rs 700 level and incur losse... Read More
Market View Bearish Bullish
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 short put - net premium paid

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

  Short Call (Naked Call) Bull 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.

This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.

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 or less volatility.
Action
  • Sell Call Option

  • Buy OTM Put Option
  • Sell ITM Put Option

A Bull Put Strategy involves Buy OTM Put Option + Sell ITM Put Option.

For example, If you are of the view that the price of Reliance Shares will moderately gain or drop its volatility in near future. If Reliance is currently trading at 600 then you will buy a OTM PUT OPTION at 700 and a sell a ITM PUT OPTION at 550. You will make a profit when at expiry Reliance closes at 700 level and incur losses if the prices fall down below the current price.

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 short put - net premium paid

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

  Short Call (Naked Call) Bull Put Spread
Risks Unlimited

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

Limited

Maximum loss occurs when the stock price moves below the lower strike price on expiration date.

Max Loss = (Strike Price Put 1 - Strike Price of Put 2) - Net Premium Received

Max Loss Occurs When Price of Underlying <= Strike Price of Long Put

Rewards Limited

The profit is limited to the premium received.

Limited

Maximum profit happens when the price of the underlying moves above the strike price of Short Put on expiration date.

Max Profit = Net Premium Received

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 unexercised

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 exercised

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

  Short Call (Naked Call) Bull Put Spread
Advantages

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

Allows you to benefit from time decay in profit situations. Helps you profit from 3 scenarios: rise, sideway movements and marginal fall of the underlying.

Disadvantage

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

Rewards are limited to premium received only.

Limited profit. Time decay may go against you in loss situations.

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







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