Chittorgarh.com Logo
Loading...
Compare Strategies:

Short Put Vs Bear Call Spread Options Trading Strategy Comparison

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

Short Put Vs Bear Call Spread

  Short Put Bear Call Spread
Short Put Logo Bear Call Spread Logo
About Strategy A short put is another Bullish trading strategy wherein your view is that the price of an underlying will not move below a certain level. The strategy involves entering into a single position of selling a Put Option. It has low profit potential and is exposed to unlimited risk. A short put strategy involves selling a Put Option only. For example if you see that the shares of a Company A will not move below Rs 1000 then you sell the Put Option of that stock at Rs 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this trade. However, if the price of the underlying moves below 1000 then you will incur unlimited losses. 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 Bullish Bearish
Strategy Level Beginners Beginners
Options Type Put Call
Number of Positions 1 2
Risk Profile Unlimited Limited
Reward Profile Limited Limited
Breakeven Point Strike Price - Premium Strike Price of Short Call + Net Premium Received

When and how to use Short Put and Bear Call Spread?

  Short Put Bear Call Spread
When to use?

Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

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 Bullish

When you are expecting the price or volatility of the underlying to increase marginally.

Bearish

When you are expecting the price of the underlying to moderately go down.

Action
  • Sell Put Option

A short put strategy involves selling a Put Option only. So if you see that the shares of a Company A will not move below a 1000 then you sell the Put Option of that stock at 1000 and receive the premium amount. The premium received will be the maximum profit you can earn from this deal. However, if the price of the underlying moves below 1000 than you will incur losses.

  • Buy OTM Call Option
  • Sell ITM Call Option

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 - Premium
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.

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

  Short Put Bear Call Spread
Risks Unlimited

There is no limit to losses incurred in the trade. The risk is when the price of the underlying falls, and the Put is exercised. You are then obliged to buy the underlying at the strike price.

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 Limited

The profit is limited to premium received in your account when you sell the Put Option.

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 doesn't go down and options remain exercised.

Underlying goes down and both options not exercised

Maximum Loss Scenario

Underlying goes down and options remain exercised.

Underlying goes up and both options exercised

Pros & Cons or Short Put and Bear Call Spread

  Short Put Bear Call Spread
Advantages

It allows you benefit from time decay. And earn income in a rising or range bound market scenario.

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

It is a high risk strategy and may cause huge losses if the price of the underlying falls steeply.

Limited profit potential.

Simillar Strategies

Bull Put Spread, Covered Call, Short Straddle

Bear Put Spread, Bull Call Spread