If I think DT is going up and I want to participate by selling a spread for credit...is there a specific advantage me of selling a Bull Put spread vs. a Bear Call spread? Any insight will be appreciated.
Credit Spread Question, Bull Put or Bear Call
- Thread starter marc82much
- Start date
I'm not sure you are using these terms in the way they are commonly understood...
A bear call spread is when you sell the 45 call and buy the 50 call. That generates a credit. But it's a bearish position, which means that you make money if the stock goes down.
But you said you think the stock is going up...
BMK
A bear call spread is when you sell the 45 call and buy the 50 call. That generates a credit. But it's a bearish position, which means that you make money if the stock goes down.
But you said you think the stock is going up...
BMK
Yes, to take advantage of a possible move up you could sell a BP (credit) spread, or Buy a call vertical (debit) spread. They would be considered equivalent except with the advantage of the BPS not having any closing costs if the stock is above the short strike at expiry. Like BMK said, a Bear Call spread is a bearish call credit spread.
BMK...Ok, I think I got tongue tied. A nice person messaged me and got me straight. I was thinking this: If it is going up and my only goal is premium. I can sell a Put Spread for a credit and hope the stock does not go down and threaten my short strike. Or, if I wanted to participate in the move up, but not take too much risk, I could buy a call spread for a DEBIT. Thus, if the stock price pushed higher, I could participate to a certain level. Whew, I think I got it.
They are the same risk... selling the (put)credit spread vs buying the (call)debit spread ...dictated by the box (as OA pointed out)
Whats your timeframe?
If you think an underlying is going up and wants to sell a credit spread, it's a bull put spread that you need to do, i.e. sell a put with a higher strike and buy a put with a lower strike. The Bear Call spread is the opposite; you sell it when you think the underlying is going down, hence the name: BEAR call spread.
Since the corrections are in, I would like to also mention to help you decide whether you want use a credit or a debit spread, you may want to look at Implied Volatility and if options are cheap or expensive. Debit spreads are generally used to reduce cost and credit spreads are generally used to reduce risk.
Yes one should look at the richness/cheapness of the premium to determine if she should sell the vol or buy it, or both, and at which strike and which expiration?
Another point I'd like to add... debit verticals are more directionally based, while credit verticals are the opposite.
Debit verticals is a bet on where you think price is headed to by this amount of time.
Credit verticals is a bet on where you think price ISNT headed to by this amount of time.
Same goes buy buying a call and selling a put (risk reversal). You are more delta based buying vol, vega based selling it