WHAT IS BULL CALL SPREAD

OPTION TRADING STRATEGY

Bull Call Spread

The bull call spread option trading strategy is employed when the options trader thinks that the price of the underlying asset will go up moderately in the near term.

Bull call spreads can be implemented by buying an at-the-money call option while simultaneously writing a higher striking out-of-the-money call option of the sameunderlying security and the same expiration month.

Bull Call Spread Construction

Buy 1 ITM Call Sell 1 OTM Call

By shorting the out-of-the-money call, the options trader reduces the cost of establishing the bullish position but forgoes the chance of making a large profit in the event that the underlying asset price skyrockets. The bull call spread option strategy is also known as the bull call debit spread as a debit is taken upon entering the trade

Limited Upside profits

Maximum gain is reached for the bull call spread options strategy when the stock price move above the higher strike price of the two calls and it is equal to the difference between the strike price of the two call options minus the initial debit taken to enter the position.

The formula for calculating maximum profit is given below:

• Max Profit = Strike Price of Short Call - Strike Price of Long Call - Net Premium Paid - Commissions Paid
• Max Profit Achieved When Price of Underlying >= Strike Price of Short Call

Limited Downside risk

The bull call spread strategy will result in a loss if the stock price declines at expiration. Maximum loss cannot be more than the initial debit taken to enter the spread position.

The formula for calculating maximum loss is given below:

• Max Loss = Net Premium Paid + Commissions Paid
• Max Loss Occurs When Price of Underlying <= Strike Price of Long Call

Breakeven Point(s)

The underlier price at which break-even is achieved for the bull call spread position can be calculated using the following formula.

• Breakeven Point = Strike Price of Long Call + Net Premium Paid

OPTION TIPS

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NIFTY STRANGLE STRATEGY

OPTION CALL PUT STRATEGY

Volatility is back in market. For coming sessions we recommend Nifty strangle strategy:

NIFTY STRANGLE STRATEGY

LEG1: BUY NIFTY 4700  PUT @ 32

LEG2: BUY NIFTY 4900 CALL @ 55

COST =87            

 RISK PER LOT = 4350

RETURN = UNLIMITED

Option Call Put Strategy

Option Call Put Strategy

Options provide  liberty to make profits in almost every kind of market provided  u judge it correctly. Option strategies in this post are categorized as per market conditions

Bullish strategies

Bullish options strategies are employed when the options trader expects the underlying stock price to move upwards. It is necessary to assess how high the stock price can go and the time frame in which the rally will occur in order to select the optimum trading strategy.

The most bullish of options trading strategies is the simple call buying strategy used by most novice options traders.

Stocks seldom go up by leaps and bounds. Moderately bullish options traders usually set a target price for the bull run and utilize bull spreads to reduce cost. (It does not reduce risk because the options can still expire worthless.) While maximum profit is capped for these strategies, they usually cost less to employ for a given nominal amount of exposure. The bull call spread and the bull put spread are common examples of moderately bullish strategies.

Mildly bullish trading strategies are options strategies that make money as long as the underlying stock price does not go down by the option's expiration date. These strategies may provide a small downside protection as well. Writing out-of-the-money covered calls is a good example of such a strategy.

Bearish strategies

Bearish options strategies are employed when the options trader expects the underlying stock price to move downwards. It is necessary to assess how low the stock price can go and the time frame in which the decline will happen in order to select the optimum trading strategy.

The most bearish of options trading strategies is the simple put buying strategy utilized by most novice options traders.

Stock prices only occasionally make steep downward moves. Moderately bearish options traders usually set a target price for the expected decline and utilize bear spreads to reduce cost. While maximum profit is capped for these strategies, they usually cost less to employ. The bear call spread and the bear put spread are common examples of moderately bearish strategies.

Mildly bearish trading strategies are options strategies that make money as long as the underlying stock price does not go up by the options expiration date. These strategies may provide a small upside protection as well. In general, bearish strategies yield less profit with less risk of loss.

Neutral or non-directional strategies

Neutral strategies in options trading are employed when the options trader does not know whether the underlying stock price will rise or fall. Also known as non-directional strategies, they are so named because the potential to profit does not depend on whether the underlying stock price will go upwards or downwards. Rather, the correct neutral strategy to employ depends on the expected volatility of the underlying stock price.

Examples of neutral strategies are:

Guts - sell in the money put and call

Butterfly - buy in the money and out of the money call, sell two at the money calls, or vice versa

Straddle - holding a position in both a call and put with the same strike price and expiration. If the options have been bought, the holder has a long straddle. If the options were sold, the holder has a short straddle. The long straddle is profitable if the underlying stock changes value in a significant way, either higher or lower. The short straddle is profitable when there is no such significant move.

Strangle - the simultaneous buying or selling of out-of-the-money put and an out-of-the-money call, with the same expirations. Similar to the straddle, but with different strike prices.

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BOOK PROFIT IN NIFTY STRANGLE STRATEGY

Book partial profit in nifty strangle strategy given on nifty option tips on 30 April 2012

Book profit in Nifty 5200 put @ 112 continue to hold Nifty 5400 call

Original strategy

NIFTY STRANGLE STRATEGY

LEG1: BUY NIFTY 5200 PUT @ 70

LEG2: BUY NIFTY 5400 CALL @ 45

COST =115          

 RISK PER LOT = 5750

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=5515

LOWER BREAK GIVEN POINT=5085

CALL OPTION PUT OPTION

CALL OPTION PUT OPTION

Options (call put) is often considered a segment for advance traders, but if given some consideration, practice and guidance this is most profitable, flexible segment for traders., although not investors. For investors Option writing is better idea which we will discuss in later post.

Here we will give you some insight ,what are benefits of option trading and of course other side of picture too.

Advantages of Options Trading

Limited Risk Unlimited Profit

. Risk is limited to the option premium (except when writing options for a security that is not already owned).

Suits for every kind of market

 Options can be used in a wide variety of strategies, from conservative to high-risk, and can be tailored to more expectations than simply "the stock will go up" or "the stock will go down."

Leverage.

An investor can gain leverage in a stock without committing to a trade.Highly suitable for very short term traders.

Hedging.

 Options allow investors to protect their positions against price fluctuations when it is not desirable to alter the underlying positon.

Disadvantages of Options Trading

Time

Time kills profits in options at a very high rate and act as major disadvantage when u long option, while it is friend when u short option.

Costs.

 The costs of trading options (including both commissions and the bid/ask spread) is significantly higher on a percentage basis than trading the underlying stock, and these costs can drastically eat into any profits.

Liquidity.

 With the vast array of different strike prices available, some will suffer from very low liquidity making trading difficult.

.

Overall Options present a good opportunity to formulate plans which can take advantage of volatility in underlying markets as well as price direction. However for most traders the disadvantages are significant and online futures trading is usually a better option.

OPTION CALL PUT STRATEGY

OPTION CALL PUT STRATEGY

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Nifty is being trading in a range bound session since a long time, a break out is  at this point. We suggest nifty strangle strategy  is as follows

.

NIFTY STRANGLE STRATEGY

LEG1: BUY NIFTY 5200 PUT @ 70

LEG2: BUY NIFTY 5400 CALL @ 45

COST =115          

 RISK PER LOT = 5750

RETURN = UNLIMITED

UPPER BREAK GIVEN POINT=5515

LOWER BREAK GIVEN POINT=5085

Pay off table

Strike Price	Call Option Price	Strike Price	Call Option Price	Strike rate	Closing price	Lot size	net investment	Total Investment	Payoff
5400	45	5200	70	50	4550	50	5750	5750	26750
5400	45	5200	70	50	4600	50	5750	5750	24250
5400	45	5200	70	50	4650	50	5750	5750	21750
5400	45	5200	70	50	4700	50	5750	5750	19250
5400	45	5200	70	50	4750	50	5750	5750	16750
5400	45	5200	70	50	4800	50	5750	5750	14250
5400	45	5200	70	50	4850	50	5750	5750	11750
5400	45	5200	70	50	4900	50	5750	5750	9250
5400	45	5200	70	50	4950	50	5750	5750	6750
5400	45	5200	70	50	5000	50	5750	5750	4250
5400	45	5200	70	50	5050	50	5750	5750	1750
5400	45	5200	70	50	5100	50	5750	5750	-750
5400	45	5200	70	50	5150	50	5750	5750	-3250
5400	45	5200	70	50	5200	50	5750	5750	-5750
5400	45	5200	70	50	5250	50	5750	5750	-5750
5400	45	5200	70	50	5300	50	5750	5750	-5750
5400	45	5200	70	50	5350	50	5750	5750	-5750
5400	45	5200	70	50	5400	50	5750	5750	-5750
5400	45	5200	70	50	5450	50	5750	5750	-3250
5400	45	5200	70	50	5500	50	5750	5750	-750
5400	45	5200	70	50	5550	50	5750	5750	1750
5400	45	5200	70	50	5600	50	5750	5750	4250
5400	45	5200	70	50	5650	50	5750	5750	6750
5400	45	5200	70	50	5700	50	5750	5750	9250
5400	45	5200	70	50	5750	50	5750	5750	11750
5400	45	5200	70	50	5800	50	5750	5750	14250
5400	45	5200	70	50	5850	50	5750	5750	16750
5400	45	5200	70	50	5900	50	5750	5750	19250
5400	45	5200	70	50	5950	50	5750	5750	21750
5400	45	5200	70	50	6000	50	5750	5750	24250
5400	45	5200	70	50	6050	50	5750	5750	26750
5400	45	5200	70	50	6100	50	5750	5750	29250
5400	45	5200	70	50	6150	50	5750	5750	31750
5400	45	5200	70	50	6200	50	5750	5750	34250

The long options strangle is an unlimited profit, limited risk strategy that is taken when the options trader thinks that the underlying stock will experience significant volatility in the near term. Long strangles are debit spreads as a net debit is taken to enter the trade.