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  • Bull & Bear Spread Strategy

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    dexter8088
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    This document outlines four spread strategies: 1) Bull call spread involves buying an ITM call and selling an OTM call on the same underlying asset. 2) Bull put spread involves buying a lower strike put and selling a higher strike put, generating a credit. 3) Bear call spread involves buying an OTM call and selling an ITM call, creating a net debit. 4) Bear put spread involves buying a higher strike put and selling a lower strike put, also resulting in a net debit.

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    This document outlines four spread strategies: 1) Bull call spread involves buying an ITM call and selling an OTM call on the same underlying asset. 2) Bull put spread involves buying a lower strike put and selling a higher strike put, generating a credit. 3) Bear call spread involves buying an OTM call and selling an ITM call, creating a net debit. 4) Bear put spread involves buying a higher strike put and selling a lower strike put, also resulting in a net debit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    338 views6 pages

    Bull & Bear Spread Strategy

    Uploaded by

    dexter8088
    This document outlines four spread strategies: 1) Bull call spread involves buying an ITM call and selling an OTM call on the same underlying asset. 2) Bull put spread involves buying a lower strike put and selling a higher strike put, generating a credit. 3) Bear call spread involves buying an OTM call and selling an ITM call, creating a net debit. 4) Bear put spread involves buying a higher strike put and selling a lower strike put, also resulting in a net debit.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 6

    BULL SPREAD STRATEGY

    BULL CALL SPREAD STRATEGY


    A bull call spread is constructed by buying an in-the-money (ITM) call option, and selling another out-of-the-money (OTM) call option. Often the call with the lower strike price will be in-the-money while the Call with the higher strike price is out-of-the-money. Both calls must have the same underlying security and expiration month.

    BULL PUT SPREAD STRATEGY


    A bull put spread can be profitable when the stock / index is either range bound or rising. The concept is to protect the downside of a Put sold by buying a lower strike Put, which acts as an insurance for the Put sold. The lower strike Put purchased is further OTM than the higher strike Put sold ensuring that the investor receives a net credit, because the Put purchased (further OTM) is cheaper than the Put sold. This strategy is equivalent to the Bull Call Spread but is done to earn a net credit (premium) and collect an income.

    BEAR SPREAD STRATEGY


    BEAR CALL SPREAD STRATEGY
    The strategy requires the investor to buy out-of-the-money (OTM) call options while simultaneously selling in-the-money (ITM) call options on the same underlying stock index. This strategy can also be done with both OTM calls with the Call purchased being higher OTM strike than the Call sold.

    BEAR PUT SPREAD STRATEGY


    This strategy requires the investor to buy an in-the-money (higher) put option and sell an out-of-the-money (lower) put option on the same stock with the same expiration date. This strategy creates a net debit for the investor.

    Bull Call Spread Strategy


    Buy ITM Call Option & Sell OTM Call Option
    Nifty Bank Buy ITM Call Option Premium Current Value (02/01/2012) Strike Price Paid 8009 7800 414.40 8200 194.85 219.55 9856.6 4511.25

    Sell OTM Call Option Strike Price Premium Receive Net Premium Paid Option expire Net Profit 25/01/2012 180.45*25

    Bull Put Spread Strategy


    Buy Put Option (At Low Strike) & Sell Put Option (At High Strike)
    Nifty Bank Buy Put Option Premium Sell Put Option Premium Current Value (02/01/2012) Strike Price Paid Strike Price Receive Net Premium Receive Option expire Net Profit 25/01/2012 51.15*25 8009 7600 150 7800 201.15 51.15 9856.6 1278.75

    Bear Call Spread Strategy


    Buy ITM Call Option & Sell OTM Call Option
    Nifty Bank Current Value (21/02/2012) 11170.4 11300 419.35 11000 556.55 137.2 9927.65 3430

    Buy OTM Call Option Strike Price Premium Sell ITM Call Option Premium Paid Strike Price Receive Net Premium Receive Option expire Net Profit 29/03/2012 137.2*25

    Bear Put Spread Strategy


    Buy Put Option (At High Strike) & Sell Put Option (At Low Strike)
    Nifty Bank Buy Put Option Premium Sell Put Option Premium Current Value (21/02/2012) Strike Price Paid Strike Price Receive Net Premium Paid Option expire Net Profit 29/03/2012 63.65*25 11170.4 11300 431.50 11200 395.15 36.35 9927.65 1591.25

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