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    Bull Call Spread

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    AKSHAYA AKSHAYA
    A bull call spread is an options strategy used by investors who are moderately bullish on a stock or index rising in the short term. It involves buying an in-the-money call option and selling an out-of-the-money call option on the same underlying asset with the same expiration date. This lowers the cost and breakeven point of a regular long call position. The strategy profits if the underlying asset rises above the breakeven point but has limited risk if it falls.

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    Bull Call Spread

    Uploaded by

    AKSHAYA AKSHAYA
    20 views2 pages
    A bull call spread is an options strategy used by investors who are moderately bullish on a stock or index rising in the short term. It involves buying an in-the-money call option and selling an out-of-the-money call option on the same underlying asset with the same expiration date. This lowers the cost and breakeven point of a regular long call position. The strategy profits if the underlying asset rises above the breakeven point but has limited risk if it falls.

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    A bull call spread is an options strategy used by investors who are moderately bullish on a stock or index rising in the short term. It involves buying an in-the-money call option and selling an out-of-the-money call option on the same underlying asset with the same expiration date. This lowers the cost and breakeven point of a regular long call position. The strategy profits if the underlying asset rises above the breakeven point but has limited risk if it falls.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    20 views2 pages

    Bull Call Spread

    Uploaded by

    AKSHAYA AKSHAYA
    A bull call spread is an options strategy used by investors who are moderately bullish on a stock or index rising in the short term. It involves buying an in-the-money call option and selling an out-of-the-money call option on the same underlying asset with the same expiration date. This lowers the cost and breakeven point of a regular long call position. The strategy profits if the underlying asset rises above the breakeven point but has limited risk if it falls.

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    Bull Call Spread

    Bull Call Spread is a strategy that must be devised when the investor is moderately bullish on the market
    direction going up in the short-term.

    A Bull Call Spread is formed by buying an “In-the-Money Call Option” (lower strike) and selling an “Out-of-
    the-Money Call Option” (higher strike). Both the call options must have the same underlying security and
    expiration month.

    The net effect of the strategy is to bring down the cost and breakeven on a Buy Call (Long Call) strategy.

    The investor will benefit if the underlying Stock/Index rallies. However, the risk is limited on the downside if
    the underlying Stock/Index makes a correction.

    Investor view: Moderately bullish on the Stock/ Index.

    Risk: Limited.

    Reward: Limited to the net premium paid.

    Breakeven: Strike price of Buy Call + net premium paid.

    Illustration

    Eg. Nifty is currently trading @ 5500. Investor is expecting the markets to rise from these levels. So buying
    Put Option of Nifty having Strike 5400 @ premium 150 and selling Call Option of Nifty having Strike 5600
    @ premium 50 will help investor benefit if Nifty goes above 5500.

    Strategy Stock/Index Type Strike Premium

    Bull NIFTY(Lot Buy 5400 150


    Call size 50) CALL (Outflow)
    Spread
    Sell 5600 50
    CALL (Inflow)

    The payoff schedule and chart for the above is shown below.

    Page 14
    Payoff Schedule Payoff Chart
    NIFTY @ Net Payoff ( ) 6000

    Expiry
    4000
    5100 -5000
    5200 -5000 2000

    5300 -5000
    0
    5400 -5000 5200 5300 5400 5500 5600 5700 5800
    5500 0 -2000
    5600 5000
    -4000
    5700 5000
    5800 5000 -6000

    5900 5000

    In the above chart, the breakeven happens the moment Nifty crosses 5500 and risk is limited to a maximum of
    5000 (calculated as Lot size * Premium Paid).

    Disclaimer

    Page 15

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