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| Bull Call Spread | Long Strangle (Buy Strangle) | |
|---|---|---|
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| About Strategy | A Bull Call Spread (or Bull Call Debit Spread) strategy is meant for investors who are moderately bullish of the market and are expecting mild rise in the price of underlying. The strategy involves taking two positions of buying a Call Option and selling of a Call Option. The risk and reward in this strategy is limited.
A Bull Call Spread strategy involves Buy ITM Call Option and Sell OTM Call Option.For example, if you are of the view that NIFTY will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell Nifty Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised. Read More | The Long Strangle (or Buy Strangle or Option Strangle) is a neutral strategy wherein Slightly OTM Put Options and Slightly OTM Call are bought simultaneously with same underlying asset and expiry date.
This strategy can be used when the trader expects that the underlying stock will experience significant volatility in the near term.
It is a limited risk and unlimited reward strategy. The maximum loss is the net premium paid while maximum profit is achieved when the underlying moves either significantly upwards or downwards at expiration.
The usual Long Strangle Strategy looks like as below for NIFTY current index value at 10400 (NIFTY Spot Price):
Options Strangle Orders
OrdersNIFTY Strike Price
Buy 1 Slightly OTM PutN Read More |
| Market View | Bullish | Neutral |
| Strategy Level | Beginners | Beginners |
| Options Type | Call | Call + Put |
| Number of Positions | 2 | 2 |
| Risk Profile | Limited | Limited |
| Reward Profile | Limited | Unlimited |
| Breakeven Point | Strike price of purchased call + net premium paid | two break-even points |
| Bull Call Spread | Long Strangle (Buy Strangle) | |
|---|---|---|
| When to use? | A Bull Call Spread strategy works well when you're Bullish of the market but expect the underlying to gain mildly in near future. | A Long Strangle is meant for special scenarios where you foresee a lot of volatility in the market due to election results, budget, policy change, annual result announcements etc. |
| Market View | Bullish When you are expecting a moderate rise in the price of the underlying. | Neutral When you are unsure of the direction of the underlying but expecting high volatility in it. |
| Action |
A Bull Call Spread strategy involves Buy ITM Call Option + Sell OTM Call Option. For example, if you are of the view that Nifty will rise moderately in near future then you can Buy NIFTY Call Option at ITM and Sell NIFTY 50 Call Option at OTM. You will earn massively when both of your Options are exercised and incur huge losses when both Options are not exercised. |
Suppose Nifty is currently at 10400 and you expect the price to move sharply but are unsure about the direction. In such a scenario, you can execute long strangle strategy by buying Nifty at 10600 and at 10800. The net premium paid will be your maximum loss while the profit will depend on how high or low the index moves. |
| Breakeven Point | Strike price of purchased call + net premium paid | two break-even points A Options Strangle strategy has two break-even points. Lower Breakeven Point = Strike Price of Put - Net Premium Upper Breakeven Point = Strike Price of Call + Net Premium |
| Bull Call Spread | Long Strangle (Buy Strangle) | |
|---|---|---|
| Risks | Limited The trade will result in a loss if the price of the underlying decreases at expiration. The maximum loss is limited to net premium paid. Max Loss = Net Premium Paid Max Loss happens when the strike price of Call is less than or equal to price of the underlying. | Limited Max Loss = Net Premium Paid The maximum loss is limited to the net premium paid in the long strangle strategy. It occurs when the price of the underlying is trading between the strike price of Options. |
| Rewards | Limited Limited To The Difference Between Two Strike Prices Minus Net Premium Maximum profit happens when the price of the underlying rises above strike price of two Calls. The profit is limited to the difference between two strike prices minus net premium paid. Max Profit = (Strike Price of Call 1 - Strike Price of Call 2) - Net Premium Paid | Unlimited Maximum profit is achieved when the underlying moves significantly up and down at expiration. Profit = Price of Underlying - Strike Price of Long Call - Net Premium Paid Or Profit = Strike Price of Long Put - Price of Underlying - Net Premium Paid |
| Maximum Profit Scenario | Both options exercised | One Option exercised |
| Maximum Loss Scenario | Both options unexercised | Both Option not exercised |
| Bull Call Spread | Long Strangle (Buy Strangle) | |
|---|---|---|
| Advantages | Instead of straightaway buying a Call Option, this strategy allows you to reduce cost and risk of your investments. | |
| Disadvantage | Profit potential is limited. | The strategy requires significant price movements in the underlying to gain profits. |
| Simillar Strategies | Collar, Bull Put Spread | Long Straddle, Short Strangle |
| Compare |
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