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While the upside is limited, unlike a long call/put strategy, it costs less to initiate a position. If your strategy turns a profit with a spot price increase, then it is called a bull call spread.
Provide the Stock Ticker, Expiry Date, ATM strike price, and Spread (higher strike – lower strike) for the strategy. After you’ve set that dollar amount, you can calculate the maximum number of contracts you’re able to trade and still stay within your risk parameters. It’s a simple calculation of dividing the number of dollars you’re comfortable risking by the total risk of the vertical. Early assignment, while possible at any time, generally occurs only when the stock goes ex-dividend. However, for active traders, commissions can eat up a sizable portion of their profits in the long run.
Where Can I Practice Bull Call Spread Analysis?
In percentage terms, the bull call spread is 30% cheaper than purchasing only the call option. Moreover, the breakeven price is lowered when implementing a bull call spread. bull call spread calculator Moreover, if the trader is exceptionally bullish and thinks the stock will move up to $60, then the trader should just buy a call rather than purchase a Bull Call Spread.
Therefore, if the stock price is above the strike price of the short call in a bull call spread , an assessment must be made if early assignment is likely. If assignment is deemed likely and if a short stock position is not wanted, then appropriate action must be taken. Before https://www.bigshotrading.info/ assignment occurs, the risk of assignment can be eliminated in two ways. First, the entire spread can be closed by selling the long call to close and buying the short call to close. Alternatively, the short call can be purchased to close and the long call can be kept open.
Pros & Cons or Bear Call Spread and Bear Put Spread
Consider using a bear call spread when volatility is high and a modest downside is expected. This scenario is typically seen in the final stages of a bear market or correction, when stocks are nearing a trough but volatility is still elevated because pessimism reigns supreme. A bull vertical spread profits when the underlying price rises; a bear vertical spread profits when it falls. As a side note, this max profit occurs when the stock price is at $55.00 or higher at expiration.
- On the other hand, the long call with the lower strike price caps or hedges the financial risk of the written call with the higher strike price.
- The bear call spread options strategy is used when you are bearish in market view.
- A bull call spreadis purchasing a call option, and simultaneously selling another call option with the same expiration date but a higher strike price.
- The 7900 CE option also has 0 intrinsic value, but since we have sold/written this option we get to retain the premium of Rs.25.
- Option premiums can be quite expensive when overall market volatility is elevated, or when a specific stock’s implied volatility is high.
Max Loss- the maximum loss that the strategy might return, which is equal to the net premium paid (Leg 1 Ask – Leg 2 Bid). Max loss occurs when the price of the underlying stock is less than or equal to the strike price of the long call. Consider using a bull put spread to earn premium income in sideways to marginally higher markets, or to buy stocks at reduced prices when markets are choppy.
