Bull call spread risk. What is Bull Call Spread? See detailed explanations and examples on how and when to use the Bull Call Spread options trading strategy.

Bull call spread risk

Bull Call Spread Option Strategy

Bull call spread risk. Options traders looking to take advantage of a rising stock price while managing risk may want to consider a spread strategy: the bull call spread. This strategy involves buying one call option while simultaneously selling another. Let's take a closer look. Understanding the bull call spread. Although more.

Bull call spread risk


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It is a violation of law in some jurisdictions to falsely identify yourself in an email. All information you provide will be used by Fidelity solely for the purpose of sending the email on your behalf. The subject line of the email you send will be "Fidelity. Options traders looking to take advantage of a rising stock price while managing risk may want to consider a spread strategy: This strategy involves buying one call option while simultaneously selling another.

Understanding the bull call spread Although more complex than simply buying a call, the bull call spread can help minimize risk while setting specific price targets to meet your forecast. First, you need a forecast. This gives you the right to buy stock at the strike price.

This obligates you to sell the stock at the stock at the strike price. Selling a call reduces the initial capital involved. The trade-off is you have to give up some upside potential.

One advantage of the bull call spread is that you know your maximum profit and loss in advance. Normally, you will use the bull call spread if you are moderately bullish on a stock or index. Your hope is that the underlying stock rises higher than your breakeven cost. Ideally, it would rise high enough so that both options in the spread are in the money at expiration; that is, the stock is above the strike price of both calls.

When the stock rises above both strike prices you will realize the maximum profit potential of the spread.

As with any trading strategy it is extremely important to have a forecast. In reality, it is unlikely you will always achieve the maximum reward. These are general guidelines and not absolute rules. Eventually, you will create your own guidelines. You decide to initiate a bull call spread. In this example, the strike prices of both the short call and long call are out of the money.

This is known as a multi-leg order. For more information, contact your Fidelity representative. Before expiration, you close both legs of trade. Although some traders try to achieve maximum profit through assignment and exercise, if your profit target has been reached it may be best to close the bull call spread prior to expiration. To avoid complications, close both legs of a losing spread before expiration, especially when you no longer believe the stock will perform as anticipated.

Before expiration, close both legs of the trade. If this occurs, you may want to exercise the long call. Call a Fidelity representative for assistance. Trading spreads involves a number of unforeseen events that can dramatically influence your options trades. Make an effort to learn about time decay and implied volatility, and other factors that affect an options price.

This will help you understand how they can affect your trade decisions. You should also understand how commissions affect your trade decisions. Get three steps, plus a range of tools, for active investors to help trade the market. Idea generation, technical analysis and trading strategy from Viewpoints active trader. Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance.

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Please Click Here to go to Viewpoints signup page. How to sell covered calls. Put a collar on this market. Options trading entails significant risk and is not appropriate for all investors.

Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request.

Skip to Main Content. Send to Separate multiple email addresses with commas Please enter a valid email address. Your email address Please enter a valid email address. Buying calls For the basics on buying calls, read Viewpoints: Bull call trading Before placing a spread, you must fill out an options agreement and be approved for spreads trading.

Contact your Fidelity representative if you have questions. Please enter a valid e-mail address. Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.

The subject line of the e-mail you send will be "Fidelity. Your e-mail has been sent. Next steps to consider Research options Find new options ideas and get up to the minute data on options. Guide to trading Get three steps, plus a range of tools, for active investors to help trade the market.

More investing ideas Idea generation, technical analysis and trading strategy from Viewpoints active trader. Related Articles How to sell covered calls This options strategy can potentially generate income on stocks you own. Extended-hours trading Here are the pros and cons of trading when the market is officially closed.

Put a collar on this market This advanced options strategy is designed to limit losses and protect gains. Options research Consider these tips and resources to help you trade options. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, and collars, as compared with a single option trade.

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