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Bullish Strategies


Bullish Strategies

Buy Call / Long Call

Investor uses long when he is bullish about the market. A longCall is simply the purchase of one Call Option.

Market Scenario : Bullish on market and Bullish on volatility

Risk : Limited || Reward : Unlimited || BEP : Call Strike + Premium

Spot Price 5000

Strategy Strike Price Premium
long Call 5100 50

BEP = 5100 + 50 = 5150

On exit if....

Spot Price Call Payoff Premium Strategy Payoff
4800 0 -50 -50
4900 0 -50 -50
5000 0 -50 -50
5100 0 -50 -50
5150 50 -50 0
5200 100 -50 50
5300 200 -50 150
5400 300 250 -50
5500 400 -50 350


How to trade Long Call Option


Sell Put / Short Put

Investor uses shortput when he is bullish on the market direction and bearish on marketvolatility. A ShortPut is simply the selling of one Put Option.

Market Scenario : Bullish on market and bearish on volatility

Risk : Unlimited || Reward : Limited to premium || BEP : Strike - Premium

Example...

Spot Price 5000

Strategy Strike Price Premium
Short Put 5100 50

BEP = 5100 - 50 = 5050

On exit if....

Spot Price Call Payoff Premium Strategy Payoff
4800 -300 50 -250
4900 -200 50 -150
5000 -100 50 -50
5050 -50 50 0
5100 0 50 50
5200 0 50 50
5300 0 50 50
5400 0 50 50
5500 0 50 50



Bull Call Spread

Establishing a bull call spread involves the purchase of a Call Option on a particular underlying stock, while simultaneously writing a Call Option on the same underlying stock with the same expiration month, at a higher strike price. Both the buy and the sell sides of this spread are opening transactions, and are always the same number of contracts. This spread is sometimes more broadly categorized as a "vertical spread". The bull call spread, as any spread, can be executed as a "unit" in one single transaction, not as separate buy and sell transactions.

Market Scenario : Moderately Bullish to Bullish

Risk : Limited || Reward : Limited || BEP : Strike Price of Purchased Call + Net Debit Paid

Example...

Spot Price 5000

Strategy Strike Price Premium
Buy Call 5100 60
Sell Call 5200 30

BEP = 5100 + 30 = 5130

On exit if....

Spot Price Buy Call Payoff Sell Call Payoff Strategy Payoff
4800 -60 30 -30
4900 -60 30 -30
5000 -60 30 -30
5100 -60 30 -30
5130 0 -30 30
5200 40 30 70
5300 140 -70 70
5400 240 -170 70
5500 340 -270 70



Bull Put Spread

The name Bull Put Spread signifies that..

Bull : This Strategy will earn profit when market is Bullish and will lose money when market is Bearish.
Put : We will use Put Options to make this Spread.
Spread : Spread means combination of Bought and Sold Options. So here we will Buy Puts of one Strike and Sell Puts of another Strike.

So finally Bull Put Spread means the combination of Lower Strike Put Bought and Higher Strike Put Sold so that it will make money when market goes up and will lose money when market falls down.

Bull Put Spread is having limited loss and limited gain Pay off profile.

Market Scenario : Moderately Bullish to Bullish

Risk : Limited || Reward : Limited || BEP : Higher Strike - Net Premium Received

Example...

Spot Price 6000

Strategy Strike Price Premium
Buy Put 5800 40
Sell Put 5900 100

BEP = 5900 - 60 = 5840

On exit if....

Spot Price Buy Put Payoff Sell Put Payoff Strategy Payoff
5500 260 -300 -40
5600 -160 -200 -40
5700 60 -100 -40
5800 -40 0 -40
5840 -40 40 0
5900 -40 100 60
6000 -40 100 60
6100 -40 100 60
6200 -40 100 60


Call Ratio Back Spread

As the name Call Ratio Backspread suggests

Call : We will use Call Options to make this Spread
Ratio : The proportion of quantity bought and Quantity sold is there in some Ratio.
Back Spread : When we buy more quantity of one Strike compare to Quantity sold of other strike, it is called Back Spread.

So finally Call Ratio CallBack Spread is the combination of selling one Call of lower Strike Price and buying double Calls of higher Strike Price.

Bull Put Spread is having limited loss and limited gain Pay off profile.

Market Scenario : Moderately Bullish to Bullish ​ || Risk : Limited || Reward : Unlimited ||
Lower BEP : Lower Strike + Net Premium Received (in case trader has received net Premium otherwise there will not be any lower BEP)
Upper BEP : Upper Strike + (Upper Strike - Lower Strike) - Net Premium Received (in case trader has received net Premium otherwise we will add the Net Premium paid amount)​

Example...

Spot Price 6000

Strategy Strike Price Premium
Sell Call 6000 120
Buy Call 6100 60
Buy Call 6100 60

BEP = 6100 + (6100-6000) - 0 = 6200

On exit if...

Spot Price Sell Call Payoff Buy Double Calls Payoff Strategy Payoff
5800 120 -120 0
5900 120 -120 0
6000 120 -120 0
6100 20 -120 -100
6200 -80 80 0
6300 -180 280 100
6400 -280 480 200
6500 -380 680 300
6600 -480 880 400


Covered Call (Buy Stock + Sell Call)

If you own shares in a company which you feel may rise but not much in the near term. You would still like to earn an income from the shares. The covered call is a strategy in which an investor sells a Call Option on a stock he owns. The Call Option sold is usually an OTMCall. Here I will receive a premium for selling Call Option. I will sell call at a price for which I will be comfortable in selling the stock. So if market rises to that level I will get the desired money of my stock as well as premium also. If market falls, I will earn the premium.

Market Scenario : Neutral to moderately Bullish

Risk : if stock is moving down you will lose your stock value but you will gain the premium as buyer is not going to buy. If stock is moving up beyond the strike, you have to give up all the gain.

BEP : Stock Price Paid - Premium

Example...

Stock 5100

Strategy Strike Price Premium
Sell Call 5200 50

BEP = 5100 - 50 = 5050

On exit if....

Spot Price Stock Payoff Call Payoff Strategy Payoff
4800 -300 50 -250
4900 -200 50 -150
5000 -100 50 -50
5050 -50 50 0
5100 0 50 50
5200 100 50 150
5300 100 50 150
5400 100 50 150
5500 100 50 150


Protective Put (Long Stock + Long Put)

In this strategy, we purchase a stock since we feel bullish about it, but what if the price of the stock goes down. You wish you had some insurance against the price fall. So buy a Put on the stock. This gives you the right to sell the stock at a certain price which is the strike price. The strike price can be the price at which you bought the stock (ATM strike price) or slightly below (OTM strike price).

Market Scenario : Bullish

Risk : Losses limited to Stock price + Put Premium– Put Strike price

Reward : Unlimited

BEP : Put Premium + Stock Price

Example...

Stock 5100

Strategy Strike Price Premium
Buy Put 5000 50

BEP = 5100 + 50 = 5150

On exit if....

Spot Price Stock Payoff Put Payofff Strategy Payoff
4800 -300 150 -150
4900 -200 50 -150
5000 -100 -50 -150
5100 0 -50 0
5100 50 -50 0
5200 100 -50 50
5300 200 -50 150
5400 300 -50 250
5500 400 -50 350






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