Bull & Bear Option Trading Strategies

What is a 'Bear Call Spread'

A bear call spread is a type of derivatives strategy used in options trading when a decline in the price of the underlying asset is expected. It is achieved by selling call options at a specific strike price while also buying the same number of calls, but at a higher strike price. The maximum profit to be gained using this strategy is equal to the difference between the price paid for the long option and the amount collected on the short option.

BREAKING DOWN 'Bear Call Spread'

For example, let's assume that a stock is trading at Rs 30. An option investor has purchased one call option with a strike price of Rs 35 for a premium of Rs 0.50 and sold one call option with a strike price of Rs 30 for a premium of Rs 2.50. If the price of the underlying asset closes below Rs 30 upon expiration, then the investor collects Rs 200 ((Rs 2.50 - Rs 0.50) * 100 shares/contract).

Bull Call Spread

A bull call spread is an options trading strategy that involves purchasing call options at a specific strike price while also selling the same number of calls of the same asset and expiration date but at a higher strike. A bull call spread is used when a moderate rise in the price of the underlying asset is expected.

BREAKING DOWN 'Bull Call Spread'

Bull call spreads are a type of vertical spread. A bull call spread may be referred to as a long call vertical spread. Vertical spreads involve simultaneously purchasing and writing an equal number of options on the same underlying security, same options class and same expiration date. However, the strike prices are different. There are two types of vertical spreads, bull vertical spreads and bear vertical spreads, which could both be implemented using call and put options.