Bull call spread vs Straight Call

M

moolah

From what i understand, to enter a Bull call spread, one Buy a ITM call and Sell a OTM call at the same time to create a pair trade. Everything else about the 2 legs to trade remain the same -- same expiration, same financial product.

For a straight call, one would buy a call and come back another time to enter a sell call to close the position.

The difference between the 2 strategies is that for a bull call spread, the 'close' strike price is decided beforehand when the trade is initiated. However, for a straight call trade, the 'close' strike price is not pre-determined and is up to the trader at what price he wants to close the trade.

Please correct me if i am wrong
 
moolah said:
From what i understand, to enter a Bull call spread, one Buy a ITM call and Sell a OTM call at the same time to create a pair trade. Everything else about the 2 legs to trade remain the same -- same expiration, same financial product.

For a straight call, one would buy a call and come back another time to enter a sell call to close the position.

The difference between the 2 strategies is that for a bull call spread, the 'close' strike price is decided beforehand when the trade is initiated. However, for a straight call trade, the 'close' strike price is not pre-determined and is up to the trader at what price he wants to close the trade.

Please correct me if i am wrong
More...

The spread reduces your risk and profit potential vs the long call. For short term trading, I prefer the long call. For swing positions I prefer spreads. For shorting, I prefer spreads.
 
https://www.schwab.com/active-trade...ategy-spotlight-long-call-vs-bull-call-spread
"
By Nathan Peterson

If you are a long option trader you are likely familiar with one of the biggest drawbacks of this strategy which is the impact of time decay.

One way you can help offset the impact of time decay on a long option is by simultaneously selling another option against your initial position to form what is known as an option spread.

yadda yada

Bottom line

The intent of this article is not to necessarily persuade you to select one strategy over another, it is meant to help shed light on the benefits and trade-offs to assist you when deciding which strategy to initiate. If you are comfortable with the risk and you are exceptionally bullish on a stock then you might prefer a long call strategy over a bull call spread since it offers more profit potential.

Having said that, even if you are bullish on a stock, it may not make the desired move within the needed timeframe in order to achieve a profit, so you might consider a bull call spread since it substantially reduces the time decay component. Regardless of how you proceed I hope this article has helped provide some insight into how these two strategies match-up. Look for additional bullish and bearish strategy comparisons in upcoming Option Strategy Spotlight articles.

"
 
Slightly repeating @Robert Morse, I trade long options for direction when I expect that the movement in price will exceed decay in time value, and that volatility will be similar when I come to sell the option prior to expiry. I also sell further-dated (6-month typically) Out-of-the-Money spreads where I expect the spread to expire worthless and simply pocket the premium, with Value at risk limited to the spread.

You can see actual examples in my journal on here.
 
Global OptionsTrades said:
It depends on what your expectations of price and volatility are and what you're trying to achieve.

You seem to have been asking variations of the same question for a couple of months and received plenty of informative replies...

https://www.elitetrader.com/et/threads/bearish-equivalent-of-bull-call-spread.333433/[/Q
No one g
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No one can give me a straight answer. I just want a Yes / No answer weather my understanding is correct. I also don't want links to more reading material. I would have done that myself already. Hence, the reason i seem to be repeatedly asking this question.
 
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moolah said:
No one can give me a straight answer. I just want a Yes / No answer weather my understanding is correct. I also don't want links to more reading material. I would have done that myself already. Hence, the reason i seem to be repeatedly asking this question.
More...

If that is your request, sure. You're wrong.
 
moolah said:
From what i understand, to enter a Bull call spread, one Buy a ITM call and Sell a OTM call at the same time to create a pair trade. Everything else about the 2 legs to trade remain the same -- same expiration, same financial product.

For a straight call, one would buy a call and come back another time to enter a sell call to close the position.

The difference between the 2 strategies is that for a bull call spread, the 'close' strike price is decided beforehand when the trade is initiated. However, for a straight call trade, the 'close' strike price is not pre-determined and is up to the trader at what price he wants to close the trade.

Please correct me if i am wrong
More...
Here's a comparison between a long call and long call spread strategy backtest in SPY. They are both 30 days to expiry. The long call is a 50 delta. The long call spread is a 60/40 delta.
First the long call with an average annual return of 0.32% based on returns over the stock price.
d4c7a930b408be5332569b7f5dc7bde9.png


Second is the long call spread with an annual return of 0.86%.
eb8e59a9e961b2d09266bd81c80c4ebb.png
 
moolah said:
The difference between the 2 strategies is that for a bull call spread, the 'close' strike price is decided beforehand when the trade is initiated. However, for a straight call trade, the 'close' strike price is not pre-determined and is up to the trader at what price he wants to close the trade.
More...

No.
 
moolah said:
No one can give me a straight answer. I just want a Yes / No answer weather my understanding is correct. I also don't want links to more reading material. I would have done that myself already. Hence, the reason i seem to be repeatedly asking this question.
More...

Hi Moolah,

I completely agree with your complaint here. So many of the questions asked on this website are answered with just a mumbo-jumbo of data, info, etc... that doesn't even answer the question.

Having said that I can't give you a definite Yes/No either but you seem to have it figured out pretty close.
When you use "close" strike price that confuses your question a bit. OTM strike prices never "close" a trade as you seem to be implying if I read your question correctly.

When you buy a call only, you will decide when you want to sell (close) that position just like any trade and your profit is unlimited. When you buy a bull call spread, you have a long & short so your profit is capped but that doesn't determine when the trade is closed. You will still close the trade just like any trade except you'll be closing 2 positions.

Sorry if this doesn't clarify your question any better. :)
 
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