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Bull Call Spread Options Strategy ( With Practical Example)


I Strongly believe , to be Successful in Stock Markets you Require two things :

1) Edge
2) Hedge

Edge means having your own Trading System , following your own consensus & Conviction.

Hedge is like an Insurance Policy , it will protect you from losing big and also maximise your earning potential over time without Destruction of your Capital.

I will be Sharing one of the Hedging Strategy here.

Example : Nifty on Friday (5th June) has closed around 10150. You are Bullish for this Weekly Expiry and what you to do is buy a Call Option of 10200 which is Trading around ₹120. Buying or selling naked Options involves high risk as its equal to betting.

If you win you win Big or else you lose Everything.

So buying naked Options isnt my Cup of Tea.
What will I do in this Scenario?

I would buy a 10200 CE (11th June Expiry ) at ₹120 and would sell a 10300 CE (11th June Expiry) at ₹80 to manage my risk.

Now there are 3 Situations which can happen :

1) Nifty continues to rise: The 10200 Call Option would give more profit compared to the loss of 10300 CE as the near term option value always rises Quickly.

2) Nifty goes down : Place a Stoploss for your Option .
Stoploss would be the price of 10200 CE - Price paid for 10300 CE. (120-80 = 40) and get out at Breakeven.

3) Nifty Expires between 10200 to 10300 : This is the place where you get Maximum profit.
As 10200 CE will go higher and 10300 CE sold will expire at Zero.

Using this Strategy you can minimise your losses and can maximise your Earnings.

Naked Options buying requires high expertise and only well Trained Traders can do that.
It's not Possible for a common Trader to do the same.

How much Margin does this Strategy Require?

Let's check Zerodha Margin Calculator for the same.


Zerodha margin Calculator by Default considers only the Monthly Options and I entered the same.

This Strategy would only Require a margin of ₹15k for 1 lot of Nifty.

From 1st June , SEBI has reduced the margin Requirement for Hedge Positions.

Before 1st June , this Strategy required margin of more than ₹80k.

So the Potential for Hedge Trading has increased Manifold.

You can do the same if you are BEARISH . You can use put options.( Bear Put Spread)

Important Rules for this Strategy :

Take Equal Quantity on both sides.

1) If you are buying 5 lots , sell 5 lots.

2) Enter both Trades at once & also exit both at once.

You can use the same for Bank Nifty as well as Stock Options.

Thank You for Reading the Blog , Kindly comment Below if you have any Queries related to this Strategy and also do comment if you want to write a Blog on any other Topic.


Comments

Satyam said…
That was a great article. I was trying to understand how hedging needs to be done for almost zero loss of profits. Your example explains this pretty well.
Thanks!
Vishnu m said…
Excellent post
Mohit K said…
Excellent article , trying to follow thjs strategy since 2 sessions and
have given good results so far 😊
Rounak said…
I completely understood this strategy now✨
Very simply explained.
Rounak said…
Very simply explained.
Very useful.
Aditya Potnis said…
Great post sir!!Please also write about stoploss for options..should it be on spot or on premium?
Unknown said…
I completely understand now. Excellent boss.
Shiva said…
Superb sir u are a expert clearly explained with example
Abhi said…
Very well explained.. Simple and powerful
Abhi said…
Very well explained. Simple and powerful
sivaramakrishna said…
Great explanation with simple words.
Can I buy 10300PE instead of selling 10300CE ?
Mohit Jakhotia said…
Hey Sivaramakrishna.

If you Buy 10300 PE when Nifty is at 10150 this will become highly in the Money Option and Premiums will be high . Also you are buying 10200 CE so this is a Neutral Strategy what you said.
You win only when Market shoots up or shoots down.
Otherwise chances of not earning anything is quite high.
Selling 10300 CE is for the purpose of Hedgingg your 10200 CE.
Unknown said…
Very well explained.understood well and will apply with out fear.
Mohit Jakhotia said…
Hey Aditya.

Options are an Underlysing Asset of Index ( Nifty , Bank Nifty) premium of options change due to change in Index Movements.

Stoploss and Targets should be placed based on Nifty or Bank Nifty Spot or Future levels.
Prashantha c said…
Super sir..I'm just looking for hedging stretegy..Will try
Amazing article and superb explanation.
shyam shukla said…
What would the stoploss and when shoul i place it is the main concern for me.can u help me with it?
Anonymous said…
Can you give clarification with regards to how to execute this strategy. I mean first we should buy the 10200 CE and then sell the 10300 CE? Or first we can sell and then buy? Coz selling an option first requires lot of margin. Will the broker automatically consider it (buy and sell) as an hedging strategy and block only the margin amount as indicated in your blog?
Mohit Jakhotia said…
It's a Myth now that selling requires a lot of Margin.

First buy and then sell. It will Calculate the Margin Automatically
Akshay k said…
It was very nicely explained
Vaibhav Singh said…
That's a phenominal strategy sir.
arpit ramani said…
Can i trade bear put spread and bull call spread at a same time , what will be consequences? is it a good idea?
Unknown said…
in this strategy we exit only on expiry day? or when we show Highest profit
Sachin Gupta said…
I got some valuable points through this blog. Thank you sharing this blog.
lic ipo for policyholders

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