How to use bull call spreads and bear put spreads in Futures and Option market

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These diagonal spreads are more complicated and are therefore more suitable for the OTC market. A bull call spread is used when you have a moderately bullish view on the underlying asset. When picking stocks, individuals opting for this intraday trading strategy must ensure that they choose shares that are liquid as well as volatile. Furthermore, they must make sure to put in a stop loss for all orders.

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What you can do is to buy a SBI 250 call option at Rs.12 and sell a SBI 270 call option at Rs.5. Let us now understand with a table how the pay-off of this strategy will look like.. Below is the short straddle strategy and the payoff for Reliance Industries with both 2340 call and put options sold. Note that short straddles are an unlimited risk strategy on both sides and so position size should be kept in check while trading short straddles. If you want to make this short straddle trade risk defined, OTM options can be bought on both sides which will act as a hedge and the trade will be risk defined. The new structure created this way is called an iron fly.

This will be the ideal scenario, because trader will have “positive payoffs” of both bought and sold calls. This way, the trader reduced his maximum loss, from unlimited to limited. In this case, the trader receives a higher premium for the sell call option than he pays to the buy call option. The investors are hereby requested to comply with the regulatory guidelines issued by Exchanges and Depositories from time to time with regard to KYC compliance and related requirements.


call spreadss make money from the rising stock price and decaying time premium of the short call option. This is the strategy to be used when you expect the stock price to gradually rise up to the strike price of the short call. The time value of an option’s total price decays as days to expiration decrease. Since a bull call spread strategy consists of one long call and one short call, the theta decay depends on the positioning of the underlying price to the strike prices of the spread. If the underlying price is “close to” or below the strike price of the long call , then the price of the bull call spread decreases with passing of time. This happens because the long call is closest to ATM and decreases in value faster than the short call.

You the call for free, so why not try to take advantage? Even if you sell it at cost to cost – with no profits, your ROI will be great. Every trader has its own strategy to earn from the market. But there are many technical strategies available through which one can understand the trend of market.

This is a “Limited Profit – Limited risk” options strategy. In a sell call option, maximum profit is fixed, which is equal to the premium received and the maximum loss is unlimited. This bear put spread has a breakeven of Rs.986 (upper put strike – net cost) and the maximum profit occurs at the lower put strike of 900. Above the upper strike and below the lower strike, the payoff is constant. This bull call spread has a breakeven of Rs.1018 (lower strike + net cost) and the maximum profit occurs at the upper strike.

Bull Put spread – Again as the name suggests, it’s a bullish structure created with put options. Here, a put option (preferably ATM/ITM) is sold and a lower strike put option is sold. For the same Reliance example, a put option of 2340 can be sold and 2260 put can be bought which will result in the desired structure of bull put spread. The main difference between a bull call spread and a bull put spread is the risk-reward ratio and probability of profit .

Bull Call Spread Example 2

Please note that by submitting the above-mentioned details, you are authorizing us to Call/SMS you even though you may be registered under DND. B) Trading in leveraged products /derivatives like Options without proper understanding, which could lead to losses. Below accounts are used for other internal purposes and should not be used to transfer money to Upstox.

With the Strip Strategy, significant gains are possible when the underlying makes a significant move at expiration, moving more favourably in the direction of loss. However, even Call Options can be costly and may expose you to more risk than you are accustomed to. You may be wondering, “Is there another way?” The answer is Yes! You could purchase a Bull Call Spread to reduce your preliminary cost and risk.

All About Options Strategy

When the prices of stocks or any other financial instrument move above/below the moving average, it serves as an indication that there is a change in momentum. In comparison to other methods, this intraday trading strategy is more difficult. This is because intraday traders need to have extensive knowledge of the market.

F&O Manual: Buy call or deploy bull call spread on Nifty, say analysts – Moneycontrol

F&O Manual: Buy call or deploy bull call spread on Nifty, say analysts.

Posted: Wed, 01 Mar 2023 08:00:00 GMT [source]

You need to ensure that the underlying and expiry for both options are the same. A. A trader first zeroes in on a security that is likely to witness a moderate increase in price over a period of time. However, don’t forget that this strategy is not suitable for each market. The stocks you are following have been on a downtrend for some time, with a 52-week low, testing the 200-day moving average and close to multi-year support.

Since you have a credit, if the short option expires worthless there is no way you can lose money. But your profits depends on the value of the bought option. Because the volatility has decreased you may not get good cash back by selling it. But you could have made more had you done a credit spread. If the stock price is close to or above the strike price of the short call, then the price of the bull call spread increases with passing time. It is because the short call is now closer to the money and decreases in value faster than the long call.

Option Strategies

The other option is to do a “Protective Put” strategy. In a protective put, you hold on to your cash market positions but simultaneously buy a lower put option . The options trader reduces the cost of placing the bullish position by shorting the out-of-the-money call. This strategy is also known as the bull call debit spread as a debit is taken upon entering the trade. You buy an OTM call option at 60 and pay a premium of 0.84 INR .

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These are option whose payoffs completely depends on the price of the underlying that further crosses a level during the option’s lifetime. In India, NSE and BSE are the options trading exchanges. Both of these exchanges are regulated by SEBI to provide the transparent trading environment.

Chapter 2: Bull Call Spread

Together the two transactions are referred to as the call legs of the spread. Buying a call is a very simple strategy when you are bullish on a stock. But what do you do if you are moderately bullish on a stock but you are not confident if the price movement will cover your cost of premium fully. That is when you adopt a moderately bullish approach, and one such approach is a bull call spread. Vertical spreads – These are structures consisting of two options of an underlying with the same expiration.

  • In India, NSE and BSE are the options trading exchanges.
  • Bull call spread is a moderately bullish strategy where you buy a lower strike call option and sell a higher strike call option of the same expiry.
  • In First case, if at the time of expiry underlying share price of ABC Corp. remained between the strikes of bought and sold calls.
  • This intraday trading strategy involves finding the stocks which have broken out of the territory in which they usually trade.

Bull Call spread option strategy is executed when we have bullish outlook in Index or F&O Stocks, in near term. Instead of buying naked calls with higher outflow, one sells higher strike calls to partially fund the outflow resulting in hedged option trading strategy. On the upside, you continue to enjoy unlimited profits once your put option premium is covered. On the downside, you risk is limited to the difference between (purchase price – put option strike price) + option premium. Practically, what traders do is to hold on to the cash market position and keep booking profits on the put option when the price dips. Of course, that leaves the long position open and you need to be wary of that.

  • The breakeven point for the collar strategy is Rs.797 as can be seen from the above table.
  • The maximum profit on the covered call strategy as we can see is Rs.28.
  • The expiration date and underlying asset, however, are the same for both Options.
  • As long as the stock is stagnating around the current levels or up to the higher call strike price, you have nothing to worry about because you will earn the premium.

In the above table in the first step we have only bought the 250 call option. To reduce the cost of Rs.12, we are also selling a higher 270 call option. The maximum loss on this strategy will be Rs.7 irrespective of how low the price of SBI goes. Similarly on the upper side, the profit will be limited to Rs.13, irrespective of how high the price of SBI goes. That is because, above the price of Rs.270, whatever you gain on the 250 call option, you lose on the 270 call option. By converting the call option into a bull call spread the break-even point of the option is dropping by Rs.5 from Rs.262 to Rs.257.

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